By Padraig O'Hannelly.
At Iraq Business News we've always been clear that Iraq is a land of both opportunities and risks. The challenge for any investor or businessperson has always been to decide what risks are worth taking, and at what price.
In the investment arena, real out-performance can only come from having a different view from that of the market -- what hedge fund veteran Michael Steinhardt dubbed a 'variant perception'.
This means, for example, that if you want to beat the market by picking shares to buy, you must believe that the market has undervalued them.
But scanning through the excellent report from Sansar Capital on the banking sector in Iraq, which we made available to readers last week, one bank share stood out as possibly overvalued.
While being generally very positive on the sector as a whole, the analysis of North Bank (BNOR) raised a number of concerns, including: dependency on foreign-exchange activities that "are likely to shrink significantly"; risk of significant losses from over-draft facilities; a high level of off-balance sheet leverage; and "selective mistranslation" from Arabic to English.
The report goes into more detail on these issues, and says the bank's auditors point out that many off-balance-sheet credit facilities are given out in a concentrated manner and with insufficient collateral. If that's the case, potential investors, and indeed depositors, must be asking themselves if this is evidence of poor risk management, or perhaps something worse.
Yet, despite these possible warning signs, shares in North Bank were trading on valuations similar to those of their peers. Whether Mr Market is right or wrong remains to be seen.
Please click here to read Mark DeWeaver's article, "Why I Still Like North Bank".