VZCZCXRO5097
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3417/01 3001510
ZNR UUUUU ZZH
R 261510Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 0096
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 003417 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON IZ
SUBJECT: WITH CITI DEAL, WARKA POSITIONED TO LEAD IRAQ'S 
PRIVATE BANKS 
 
¶1. (SBU) Summary: Citibank and Iraq's Al Warka Bank for 
Investment and Finance (Warka) announced establishment of a 
correspondent relationship on October 22.  This is good news 
for Iraq as Warka is leading the way in revitalizing Iraq's 
private banking industry.  This is also good news for the USG 
as it will speed up Embassy payments to service providers in 
Iraq.  Warka is the largest private bank in Iraq with over 
70,000 customers and 105 branches.  It is growing at the rate 
of roughly five branches per month.  While rapidly growing, 
Warka is risk adverse and reluctant to make loans to anyone 
not well-established in Iraq.  End summary. 
 
¶2. (SBU) Citibank and Iraq's Al Warka Bank for Investment and 
Finance announced on October 22 that Warka had established a 
correspondent account with Citibank.  This correspondent 
account will allow Citibank to receive deposits from, make 
payments on behalf of, or handle other financial transactions 
for Warka.  Warka Deputy Managing Director Mohammed Issa said 
"As an institution that has served Iraq since 1999, we have 
played a significant role in the reconstruction of the 
country by participating as a lead financier in many core 
sectors including, power, water, communication and 
construction." 
 
¶3. (SBU) The GOI has a program whereby letters of credit 
under USD 2 million can be underwritten by private sector 
banks.  The principal impediment to the growth of this 
program has been finding Western banks who are willing to 
confirm letters of credit (L/C's) written by small private 
banks in Iraq.  Warka's correspondent relationship with 
Citibank will provide a ready partner to confirm their 
expanding book of L/C origination.  (Note: In addition to its 
new relationship with Citibank, Warka had an indirect 
correspondent account with Wachovia Bank, and correspondent 
accounts with 26 other banks such as Standard Chartered, Bank 
Austria Creditanstalt AG, Commerzbank, and Dresdner Bank. 
End note.) 
 
¶4. (SBU) The Citibank-Warka deal has been strongly supported 
and encouraged by the Embassy and the Baghdad PRT.  The 
Baghdad PRT engaged with Citibank to work through several of 
the complications and facilitated meetings between Citibank 
and Warka.  The Baghdad PRT assisted Warka bank in opening 
the first, and to date only, private bank branch in the 
International Zone.  The Taskforce for Business Stability 
Operations (TFBSO) assisted Citibank with information on 
Iraq's banking environment and a U.S. correspondent 
relationship would lead to better execution of Iraqi dinar 
payments in support of USG war fighting and economic 
development objectives.  Post's financial management office 
also coordinated efforts to bring this deal to fruition and 
is working with Warka to install both ATMs and a branch 
office in the New Embassy Compound. 
 
------------------------------------------ 
Warka: 70,000 Customers Strong and Growing 
------------------------------------------ 
 
¶5. (SBU) Warka, 60 percent owned by its CEO, Iraqi 
businessman Saad Bunnia, is the largest private bank in Iraq 
and the fourth largest bank in Iraq in terms of its assets. 
With its core banking system and domestic debit card program, 
Warka provides a level of banking services new to Iraq.  It 
is one of the ten banks that the Trade Bank of Iraq 
recommends for letters of credit under USD 2 million. 
Warka's 45 percent of total loans to total assets represent a 
69 percent loan to deposit ratio. 
 
¶6. (SBU) Warka has more than 70,000 depositors, of which 
11,000 are foreign passport holders who have deposited 
dollars funds in Iraqi dinar (IQD) accounts in order to 
speculate on IQD appreciation and benefit from Iraq's 
relatively high interest rate (average 11.9 percent) on 
savings account deposits.  Customers are able to open a Warka 
bank account on the internet.  Issa notes that it follows 
international standard anti-money laundering and 
know-your-customer procedures.  It conducts training in 
Jordan. 
 
-------------------- 
Risk Adverse Lending 
-------------------- 
 
¶7. (SBU) Warka is one of the most aggressive lenders among 
Iraq's private banks.  As of July 2008, it had 2 percent 
returns on assets (ROA) and 26 percent return on equity (ROE) 
even while experiencing significant growth.  Asset growth 
from July 2007 to July 2008 was 131 percent. 
 
¶8. (SBU) According to Issa, Warka bank is a very cautious 
lender, "refusing to take any risks."  It makes loans only to 
 
BAGHDAD 00003417  002.3 OF 002 
 
 
established customers who are well known businessmen.  It 
does not make loans based solely on a business plan.  In 
general, Warka charges 25 percent of the loan off the top; 
all loans are for one year or less.  This means if a borrower 
obtains a one-year USD 100,000 loan, they only receive USD 
75,000 from the bank.  (Note: This is the way that loans are 
made in Iraq and so the real interest rate is much higher 
than the nominal interest rate.  Warka's exceedingly cautious 
approach to lending is shared by other private banks in Iraq 
and is one of the major reasons that small and medium 
enterprise lending has not yet taken hold.  End note.) 
 
¶9. (SBU) In addition to the interest on loans, Warka 
generates substantial income on the fees it charges providing 
such services as currency exchange, electronic funds 
transfers, letters of credit, Western Union cash transfers, 
car loans (especially to government employees who can get a 
"letter of guarantee from their ministry"), financial 
transactions with GOI ministries, and letters of guarantee. 
Warka claims to be the largest private bidder on USD at the 
Central Bank of Iraq's foreign currency auctions, averaging 
USD 50 million per day.  Its largest single-day purchase was 
USD 88 million, according to Issa.  These foreign exchange 
purchases are fore commercial customer transactions abroad. 
 
------------------------------------ 
Aggressively Expanding Branch Network 
------------------------------------ 
 
¶10. (SBU) Warka is aggressively expanding its branch network. 
 In 2008, Warka was opening new branches at the rate of about 
five per month, according to Issa.  When it opened in 1999, 
it had two branches.  As of the end of October 2008, Warka 
has a total of 105 branches open in Iraq.  There are branches 
in every province.  Warka is in the process of opening branch 
offices at all forward operating bases (FOBs).  The first to 
open was at Balad in September 2008.  Additionally, Warka 
hopes to open branches in Lebanon, Jordan, Egypt and Turkey. 
 
¶11. (SBU) Warka bank is in the process of installing an ATM 
network in Iraq.  According to Issa, Warka is willing to 
install an ATM at any "secure location" and has a deal to 
install 500 ATMs at Ministry of Social Affairs offices 
throughout Iraq.  Warka Bank intends to install 5,000 point 
of sale (POS) machines at businesses throughout Iraq. 
 
-------------------------------------------- 
Comment: Good News for both Iraq and the USG 
-------------------------------------------- 
 
¶12. (SBU) The establishment of a correspondent relationship 
between a private Iraqi bank and a U.S. bank is a significant 
milestone in the restoration of the Iraqi banking system. 
Warka is playing a key role in the revitalization of Iraq's 
private sector and is on track to be Iraq's most 
widely-branched bank in Iraq.  This new development comes at 
a time when we are pressing the Central bank of Iraq and the 
Ministry of Finance to move GOI trade business and letters of 
credit in excess of USD 4 million to private banks such as 
Warka.  (Note: This limit is currently at USD 2 million.  End 
note.)  The Citi-Warka correspondent relationship adds 
important impetus to our efforts.  Furthermore, the 
establishment of a correspondent account between Citibank and 
Warka is a positive development as it will allow the Embassy 
to accelerate its bill payments via electronic funds 
transfer.  In the past it took an average of five days for a 
payment of USG funds that originated at the Embassy to reach 
a Warka branch office for withdrawal.  A correspondent 
account with Citibank should reduce this processing time to 
two days.  End comment. 
 
CROCKER