Iraqi banks more than meets the eye

An unusual feature of many of the listed Iraqi banks is that investments account for a greater share of their deposits than loans. This is true, for example, of Mansour Bank (BMNS), National Bank of Iraq (BNOI), Commercial Bank of Iraq (BCOI), Gulf Commercial Bank (BGUC), Bank of Baghdad (BBOB), and Middle East Investment Bank (BIME). (See chart. Ratios are based on year-end 2009 annual reports. Asterisks denote foreign invested banks.) From the point of view of the minority shareholder, these names are really more like Asian-style conglomerates (known as hongs in Hong Kong) than conventional banking businesses.

Consider the case of Gulf Commercial Bank, for example, where the year-end ’09 investment/deposit ratio came to 72%, compared to a loan/deposit ratio of just 20%. You can get some idea what this investment might consist of by going to the website of the Bahraini Group, BGUC’s controlling shareholder (, which describes the group as being involved “primarily in the food and packaging industry” while also active in the financial services, real estate, construction, and household appliance sectors. If you hold BGUC shares, you are likely to be exposed not only to the bank itself but also to a business empire including a dairy, tomato paste manufacturer, hotel and furnished apartment complex, construction materials supplier, and Iraq’s exclusive distributor of Carrier air conditioners, among other things.

This would be a familiar seeming list of businesses to investors in companies like Singapore-listed Jardine Strategic Holdings, which has stakes in a convenience store chain, property developer, Mercedes-Benz distributor, and the Mandarin Hotel group. An obvious difference, of course, is that deposits are a less stable source of debt financing than the bank loans and securities that JSD relies on. But given the primitive nature of Iraqi banking and finance, these generally aren’t really going to be options anyway.

11 Responses to Iraqi banks more than meets the eye

  1. Some Random Guy 14th September 2010 at 05:55 #

    Like the analysis Dr. Weaver!

  2. DeWeaver 14th September 2010 at 15:54 #


  3. KJenkins 14th September 2010 at 21:00 #


    Do you have an opinion on the revaluation such as; How close are we to seeing an announcement from the CBI or Shabibi that the RV is in effect?

    Sincerely, Kevin

  4. DeWeaver 16th September 2010 at 08:12 #

    Hi Kevin: I don't really have a view on the timing of the redenomination, though it seems to me that there's really no reason for this to rank particularly high on their list of priorities.

  5. Basrawi 19th September 2010 at 16:05 #

    Dr. DeWeaver:
    I am developing a Residential Building in Iraq, do you think a private bank would give loans to the clients that asks for it? Are they ready to do so? Don´t you think this would activate their business ?
    Thank you.

  6. Pete 23rd September 2010 at 05:32 #

    For those who have Iraqi dina brought over the last few years (i think $800US bought about 1 million dina) Do you think they will see the exchange rate change over the next few years and see their money grow significantly?

  7. DeWeaver 25th September 2010 at 06:14 #

    I haven't dealt with any of the banks directly so I can't say. Looking at their balance sheets, my impression is that they lack the ability to evaluate credit risk and therefore shy away from lending to people they don't know well.

  8. DeWeaver 25th September 2010 at 06:15 #

    It seems to me that the currency should appreciate over the next few years as Iraqi oil exports begin to grow.

  9. IXC 26th September 2010 at 14:17 #

    Basrawi, private banks can finance your building generally up to 50% of the purchase price. You should approach some of the larger banks rather than the smaller family-owned banks.

  10. Matt 28th March 2011 at 22:16 #

    Dr. Weaver, you have not responded to the questions on the Revaluation of the currancy, do you think they are going to take the zero's off of the actual currancy itself or off of the exchange of .00084? I'm hearing both ways.