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Iraq’s 2012 Budget Forecast Based on $80 Oil


Azzaman news agency reports that the Iraqi Central Bank’s budget forecast for 2012 is based on and oil price of $80 per barrel.

Muatasem Akram, a consultant with the bank, said the forecast was reasonable, though much below the 2012 forecasts for oil prices on international markets.

He acknowledged the bank’s budgetary estimates for oil earnings were relatively low and may lead to a revenue deficit, but said it was better to adopt predictions that were easy to achieve rather than basing the country’s budget on forecasts that may not come true.

“We expect the 2012 deficit to be met by additional exports and firmer oil prices,” he said.

More than 90% of Iraq’s hard cash earnings are generated by oil exports.

Akram said the budget was based on an average export level of 2.6 million barrels a day.

He said the Central Bank adopted what it believed to be a low export figure to ensure that the development plans in the budget were achievable.

The Central Bank, he said, was aware of assurances by the Ministry of Oil of a substantial hike in oil exports in 2012.

But he said given OPEC forecasts that world oil consumption will remain stable in 2012, the bank settled on the current oil production rates and export figures.

(Source: Azzaman)

Posted in Banking & Finance, Oil & GasComments Off

Iraq: $58bn in Currency Reserves, Should Redenominate Soon


The deputy governor of Iraq’s central bank has announced that foreign currency reserves have risen to close to $58 billion, and are expected to increase further thanks to a rise in oil revenues.

Mudher Kasim said higher global oil prices could result in a budget surplus for 2011.

Reuters quotes him as saying, “(The amount of reserves) has gradually increased since the beginning of last year, when it was $40 billion. Now it is close to $58 billion”, while AlsumariaTV puts the opening figure at $50 billion.

Last October, Kasim had put reserves at around $50 billion, with 45 percent held in dollars, 45 percent in euros and 10 percent mainly in gold and British pounds.

Iraq earned $34.1 billion in oil revenue, an increase of $8.7 billion, or 34 percent, over budgeted revenue, in the first five months of this year, Deputy Prime Minister Hussain Al-Shahristani said in June.

The deputy governor said inflation — which quickened to 7.1 percent in July from 6.4 percent in June — was under control but being monitored carefully.

Iraq, battered by years of war and economic sanctions, depends mainly on imports for most goods, including food and building materials.

“If prices continue to increase and the inflation rate approaches two digits, monetary policy tools will be strongly activated to fight inflation,” he said.

Kasim said a plan to take off three zeroes from Iraq’s currency to simplify financial transactions was awaiting parliamentary approval and said the government should approve the project sooner rather than later.

(Sources: Reuters, AlsumariaTV)

Posted in Banking & FinanceComments (25)

Iraqi Inflation Up Again in May


Iraq’s core annual inflation rose to 6.3 percent in May from 6.1 percent in April, a senior official at the Central Bank of Iraq told Reuters on Sunday.

The agency reports that the figure is driven by the cost of imported goods and services, especially healthcare.

Inflation had previously risen from 5.5% in February to 5.7% in March due rising electricity prices.

(Sources: Reuters, AKnews)

Posted in Banking & FinanceComments (3)

Is the central bank serious this time?


By the end of next month, the Central Bank of Iraq (CBI) is requiring all private-sector banks to increase capital to IQD 100 bn. The banks were originally supposed to have reached this target by the end of last year but so few could have managed it that the CBI had to give them an additional six months.

With this deadline now fast approaching, 15 out of the 21 ISX-listed banks, accounting for 46% of total ISX bank-sector market cap, are still shy of the mark. (See table.) Of these, eight have announced rights/bonus issues and are already suspended from trading. Another two—BMFI and BUOI—are considering a merger. (See my last post.) The remaining five, so far as I know, have yet to announce anything.

In many of these cases, satisfying the CBI shouldn’t be too difficult. To the extent that there are retained earnings to be capitalized, capital increases don’t even require any new money. And five of these names—Economy, Mansour, Dar Es Salam, Commercial, and National—are partly owned by foreign institutions that will presumably be able to come up with the needed funds.

The interesting question, however, is what’s going to be done about banks that have insufficient retained earnings, lack deep-pocketed controlling shareholders, and have no real prospect of attracting new investors. While the CBI might like them to merge into larger entities, there does not appear to be anything in the Banking Law allowing the central bank to require this. Cancelling their licenses is an option, of course, but then does the CBI really have the administrative capacity to wind them up?

The easy way out, of course, would be to let them slide again—either by formally extending the deadline, say for another six months, or simply doing nothing once it has passed. That’s what happened last time. Will this time be different?

Posted in Construction & Engineering, Investment, Mark DeWeaver on Investments and FinanceComments Off

Mosul Bank plans merger of convenience


On April 24, the ISX website reported that Mosul Bank (BMFI) will hold a general assembly meeting on May 22 to discuss a possible merger with Union Bank (BUOI). A capital increase via a rights and bonus issue is also on the agenda.

The evident objective of such a merger would be to satisfy the central bank, which is requiring all private-sector banks to raise capital to IQD 100 bn by June. Separately, BMFI and BUOI would have to double their existing IQD 50 bn capitalizations. Together, they would immediately hit the target.

Aside from helping to satisfy the CBI’s requirement, however, it’s not clear that this deal serves any other purpose for BMFI. With only two branches—one in Baghdad and one in Erbil—BUOI just doesn’t have much of a franchise. BMFI already has branches in those two locations along with another nine in Mosul, two in Ninevah, and one each in Tikrit and Sulaymaniyah. BMFI also has over four times the deposit base of BUOI and more than twice its loan book.

Nor is BMFI actually short of capital. Like many Iraqi banks (including BUOI), its biggest single asset is cash. As of its September, 2010 balance sheet, its cash/deposits ratio came to 86%; its loan/deposit ratio was 55%.

Clearly BMFI shareholders should expect to hold more than half of the merged entity. A fair deal for them should be based on market capitalization rather than on the fact that the two banks have the same share capital.

During the past sixty trading days, BMFI’s average market cap has been 31% higher than BUOI’s. That would suggest giving each BMFI shareholder 0.57 shares in the new company for each of their existing shares, while each BUOI shareholder got 0.43 shares (57 being 31% more than 43). (Naturally this would have to be adjusted once the details of BMFI’s planned capital increase are made public.)

Such a deal would be equivalent to valuing BUOI at close to par, as its average share price over the past sixty trading days was IQD 1.01. This is not unreasonable given that its share capital is really all it would be bringing to BMFI’s merger of convenience.

Posted in Investment, Mark DeWeaver on Investments and FinanceComments (3)

Warka suitor a better bet than AsiaCell suit


A posting on the ISX website last week has revealed new details about a suit filed against Warka Bank by AsiaCell. Apparently the mobile phone operator has been unable to withdraw IQD 29.3 billion in deposits and is suing for the return of these funds under the bankruptcy provisions of the Commercial Code. (English and Arabic versions of the announcement are available at http://www.iraq-businessnews.com/2011/04/05/asiacell-to-bankrupt-warka-bank/.)

It’s not clear if Warka has any legitimate grounds for refusing AsiaCell’s withdrawal request but it’s easy to see that it might have trouble coming up with the necessary cash. The bank’s last balance sheet, for the end of 3Q 2010, showed total cash assets of only IQD 66.8 bn, down from IQD 141.1 bn at the end of 2009 and IQD 503.2 bn for 3Q 2009. And while the bank also had IQD 554.5 bn in short-term loans on its book, it’s unclear how easy these would be to liquidate.

On the other hand, however, there is no guarantee that AsiaCell’s suit will be successful. Warka has appealed the case on the grounds that failure to return deposits is not grounds for bankruptcy because they don’t count as debt for purposes of the Commercial Code. It’s hard to say what the higher court will make of this argument but it seems reasonable in principle.

In fact, it’s hard to see why the Commercial Code, rather than the Banking Law, is applicable in this case. According to Article 72 of the latter, “petitions for opening bankruptcy proceedings against a bank shall be submitted in writing to the Financial Services Tribunal.” In the event that a bank is declared bankrupt, the Tribunal is supposed to appoint a receiver to carry out a liquidation under the central bank’s supervision.

Perhaps herein lies the rub. It seems unlikely that the CBI has the administrative capacity to oversee such a process. The central bank would doubtless prefer to postpone taking action in the hopes that a foreign financial institution can be found to take up the remaining shares from Warka’s unsuccessful rights issue. This would not only provide the cash needed to pay off depositors like AsiaCell but also restore confidence in the bank, thereby reducing the demand for withdrawals.

While rumors about potential acquirers have been around for more than a year, nothing has been made public about any negotiations so far. In the absence of an effective legal remedy, however, such a takeover may be AsiaCell’s best chance of getting its money back.

Posted in Investment, Mark DeWeaver on Investments and FinanceComments (6)

Bad news for the central bank


Last week the federal supreme court ruled in favor of the government’s request to have the Central Bank of Iraq (CBI), along with the Independent High Electoral Commission, the Integrity Commission, and the High Commission for Human Rights, put under the supervision of the cabinet. This is bad news for the central bank.

Up to now, the CBI has been under the supervision of the parliament, as stipulated by the constitution. There is a good reason for this. Under the parliament, the central bank is not answerable to any single politician. Under the cabinet, it could potentially be directly controlled by one man.

A dangerous opportunity has been created for the government to increase the money supply arbitrarily. Saddam Hussein tried this during the 1990s. The result was hyperinflation.

Iraq’s US$ 50 billion in forex reserves are also at risk. There will be a big temptation to use these for local patronage projects with foreign currency-denominated expenses. If this happens, the CBI could be saddled with significant losses. It could even end up having to be recapitalized.

The court’s ruling is great news for anyone who might some day be in a position to “wet his beak” at the CBI’s expense. Bad news for everyone else.

Posted in Banking & Finance, Mark DeWeaver on Investments and FinanceComments (11)

Iraq Central Bank Assets at Risk?


Following the Supreme Court decision to place several independent bodies under the control of the Iraqi cabinet, rather than the parliament, a legal expert has said that the Central Bank of Iraq is an independent body that cannot be linked to the Cabinet.

According to the report from AKnews, the Central Bank of Iraq warned that its foreign assets would be confiscated by Iraq’s creditors if it was answerable to the government instead of the parliament.

Legal expert, Hassan Shaaban, the General Coordinator of Human Rights and Democracy Assembly in Iraq, told the news agency that the Central Bank of Iraq should not be under the supervision of the Council of Ministers because it is a board that should be managed professionally, independently and without any link to the government.

Contrary to other reports, Shaaban believes that the Central Bank has the right to object and appeal.

The central bank said in a statement issued today that its independence under Iraqi law was still the only thing that guaranteed that its financial resources abroad would not to be confiscated by the country’s international creditors.

(Source: AKnews)

Posted in Banking & Finance, Industry & Trade, PoliticsComments (1)

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