VZCZCXRO1110
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2107/01 1891455
ZNR UUUUU ZZH
R 071455Z JUL 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 8185
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BAGHDAD 002107 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON IZ
SUBJECT: BANKING IN FALLUJAH 
 
This report is sensitive but unclassified (SBU) and not for 
dissemination outside of official channels or via the 
internet. 
 
¶1. (U) This is a joint EPRT Fallujah/Embassy Baghdad 
reporting cable. 
 
¶2. (SBU) Summary: As life in Fallujah has returned to a 
semblance of normalcy, its banking sector -- both private and 
public -- has rapidly developed to meet a growing economy's 
demand for financial services.  Three state-owned banks, 
Rafidain, Rasheed, and the Agricultural Bank, and the two 
privately-owned Bank of Baghdad and Al Warkaa Bank are open 
for business.  The Al Warkaa Bank has undergone rapid growth 
in Fallujah since opening its first branch there in October 
2007; it plans to have a total of six branches open in the 
Fallujah District by the end of 2008.  Since its USD 800,000 
recapitalization in June 2008, the Agricultural Bank has 
recommenced offering low-interest loans to farmers and local 
businessmen.  Greater access to credit and financial services 
are enhancing Fallujah's economic development.  End summary. 
 
----------------- 
Banks in Fallujah 
----------------- 
 
¶3. (SBU) Six banks have offices in the Fallujah District. 
Two are private - Al Warkaa and Bank of Baghdad.  Three are 
wholly owned by the Government of Iraq: Rafidain, Rasheed and 
the Agricultural Bank.  The sixth bank, which exists in name 
only in an abandoned office, is the quasi state-owned Iraqi 
Islamic Bank.  (Note: Prior to regime change, the Iraqi 
Islamic Bank was 50 percent owned by the Baath party; this 
ownership has shifted to the Ministry of Finance.  End note.) 
 
 
--------------------------------------------- --------- 
Ag Bank: Almost Free Money for Farmers (And Officials) 
--------------------------------------------- --------- 
 
¶4. (U) The Agricultural Bank opened its first Fallujah branch 
in 2001.  It temporarily closed after 2003 and reopened its 
doors in September 2007.  According to its management, the 
Agricultural Bank plans to open offices in Karmah, 
Amiriyah-Ferris and Saqlawiyah. 
 
¶5. (SBU) The Agricultural Bank's stated goal is to act as a 
policy bank subsidizing the agricultural sector.  To this 
end, the Fallujah branch has cut its interest rates from 14 
percent to two percent on many of its financial products 
intended to assist the agricultural economy.  The two percent 
annual charge serves as an administration fee.  (Note: With 
inflation running at 15.8 percent in April 2008, the 
Agricultural Bank's terms represent essentially free money. 
End note.)  Farmers are arriving at the bank before it opens 
for financial assistance, according to bank management.  The 
money to finance these loans arrived at the bank 
approximately 30 days ago and they have received many 
applications loans.  However, the Agriculture Bank has yet to 
issue any of these loans, though they expect to begin this 
process in the near future. 
 
¶6. (SBU) In June, the bank received a capital infusion of IQD 
1 billion (USD 800,000) from the Ministry of Finance.  Prior 
to this recapitalization, it had lent IQD 225 million (USD 
188,000) to roughly 135 farmers and 15 businessmen and IQD 50 
million (USD 42,000) to approximately 50 government 
employees.  During the four years of conflict from 2003 to 
2007, delinquency rates peaked at 40 percent in early 2007 
for farmers/businessmen.  Over the past couple of months, 
late payments have declined to an estimated 25 percent based 
on discussions in June 2008 with Agricultural Bank senior 
management.  Government employees continue to pay off loans 
in a timely manner. 
 
¶7. (SBU) A committee of three people reviews loan 
applications for agricultural or business projects, and 
conducts a site visit if required.  The committee usually 
includes a member from the Agricultural Bank, the Ministry of 
Agriculture and a surveyor.  The branch manager has approval 
authority up to IQD 3 million (USD 2,400).  Bank financing is 
collateralized with real estate and the bank will lend up to 
80 percent of the project's value.  Bank officials say that 
60 percent of its loans, by value, support the summer and 
winter planting seasons. 
 
- Winter and summer crops are financed at two percent per 
annum for amounts up to IQD 3 million (USD 2,500) for a 
period of six to twelve months. 
 
- Livestock and poultry, including supporting-infrastructure, 
 
BAGHDAD 00002107  002 OF 002 
 
 
are financed at two percent per annum for a period up to four 
years. 
 
- Fruit orchards, including supporting-infrastructure, are 
financed at two percent per annum for a period up to five 
years. 
 
- Fish farms, and supporting-infrastructure, are financed at 
two percent per annum for up to two years. 
 
¶8. (SBU) The Agriculture Bank also offers 2 percent loans up 
to USD 17,000 for 25 calves; up to USD 47,000 for 500 sheep; 
up to USD 12,500 for chicken farms; up to USD 8,400 for 
refrigerated green houses; and up to USD 4,200 on other green 
houses. 
 
------------------------------------------ 
Fallujah's Al Warkaa Bank: Making Its Move 
------------------------------------------ 
 
¶9. (SBU) Prior to October 2007, there were no Al Warkaa 
branches in Fallujah District.  It now has a total of five 
branches there; four out five of these branches have opened 
since the beginning of May 2008.  There are two branches in 
Fallujah city and one branch each in Karmah, Amiriyah-Ferris 
and Saqlawiyah.  A third branch in Fallujah is scheduled to 
open in the next couple of months.  (EPRT Note: Al Warkaa's 
branches compare extremely favorably to the USD 300,000 
expenditure made by the USG, in the immediate post-kinetic 
phase, to refurbish a similar building to house the 
state-owned Rasheed Bank.  End note.) 
 
¶10. (SBU) The EPRT has worked closely with Al Warkaa in 
opening these branches, providing advice and facilitation on 
non-financial matters.  Al Warkaa has been responsive to the 
EPRT's request to open branches in the small towns around 
Fallujah as well as expanding its presence in Fallujah city. 
According to Branch Manager Mohammed Faz'a Farhan, Al Warkaa 
Bank opened branches in the small towns of Karmah, 
Amiriyah-Ferris and Saqlawiyah "due to the security ring zone 
around Fallujah which has limited economic activities in the 
city." 
 
¶11. (SBU) According to bank officials, a substantial portion 
of Al Warkaa's revenue stream is driven by electronic funds 
transfer (EFT) through letters of guarantee (domestic) and 
credit (foreign).   This activity is historically the most 
important bank activity in Iraq since it supports the 
efficient allocation of capital to support commerce 
throughout the country, they said. 
 
---------------- 
Embassy Comment: 
---------------- 
 
¶12. (SBU) Cheap credit from government banks and new 
financial services from private banks will help resuscitate 
Anbar's economy.  This good news will become better news when 
conditions allow the private banks to expand beyond 
transaction services and mobilize resources for investment. 
The GOI appears to be moving forward on providing finance to 
jump-start Anbar's post-kinetic economy.  Now the GOI needs 
to push the structural reforms that let the private sector 
take the lead. 
 
 
CROCKER