VZCZCXRO6736
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0435/01 0501251
ZNR UUUUU ZZH
R 191251Z FEB 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 1787
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000435 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/OMA AND NEA/I/ECON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON IZ
SUBJECT: BANKING IN BASRAH 
 
¶1. (U) Summary: Banks in Basrah, Iraq's second largest city, 
are a mix of state-owned and private insitutions.  Challenges 
for Basrah's bankers include low rates of loan repayment and 
establishment of "know-your-customer."  No international 
banks currently operate in Basrah, although five such banks 
are operating in Iraq.  The total number of operating banks 
in Basrah represents seven percent of the total in Iraq. End 
summary. 
 
Overview of Banking in Basrah 
----------------------------- 
 
¶2. (U) Basrah's largest banks are the state-owned Rafaidain 
Bank and Rashid Bank.  There are also the specialized, 
state-owned institutions Industrial Bank, Housing Bank, 
Agricultural Cooperative Bank, and Trade Bank of Iraq. 
Together, these banks have an overwhelming share of Basrah's 
banking business.  Additionally, there are eight private 
share-holding banks and one Islamic bank.  Basra has 
relatively few bank branches -- just one per 80,000 
inhabitants, versus one per 55,000 for Iraq as a whole. 
 
¶3. (U) The Basrah branch of the Central Bank of Iraq (CBI) 
supervises all banking activities in Iraq's southern region. 
CBI Basrah enforces banking regulations and has the authority 
to inspect and audit any bank's books and records.  The 
twenty branches of Rafidain and Rashid banks in and around 
Basrah mainly handle Government of Iraq (GOI) accounts.  They 
are located in the city of Basrah and in outlying areas, 
including sub-districts such as Dair and Talha tha have a low 
population density. 
 
Specialized Banks 
----------------- 
 
¶4. (U) A number of specialized, state-owned banks operate in 
Basrah under the auspices of the Ministry of Finance.  They 
are concentrated in the city of Basrah and have no branches 
in outlying areas, with the exception of the Agriculture 
Cooperative Bank, which has a branch in the Qurna district. 
The specialized banks include: 
 
-- Agriculture Cooperative Bank; 
-- Housing Bank (funds private housing projects, residential 
or commercial); 
-- Industrial Bank (funds industrial activities, including 
civil works related to industry); 
-- Trade Bank of Iraq (supports import-export activities with 
letters of credit). 
 
Private Banks and Sharia Banking 
-------------------------------- 
 
¶5. (U) Only one private bank in Basrah, the Iraqi Islamic 
Bank (IIB), operates according to sharia.  There are four 
other Islamic banks operating in Iraq.  IIB offers checking 
and savings accounts that do not bear interest.  Instead it 
pays returns on time deposits in the form of a partnership, 
with the bank and the depositor sharing profits and losses on 
an equal basis.  IIB makes loans under the provision that 
borrowers may not mark up goods by more than 15 percent.  The 
Iraqi Islamic Bank Basrah lends only to businesses. 
 
¶6. (U) The remaining eight banks in Basrah are private 
share-holding companies.  Their shares are publicly offered 
on the stock exchange.  Non-Iraqis also invest in these 
banks.  Some are family dominated, despite being publicly 
traded.  One third of the banks in Basrah Province are 
privately owned, the same proportion as for Iraq generally. 
Only four private banks in Basrah do business in foreign 
currency: Middle East Bank, Warka Bank, Credit Bank and Gulf 
Commercial Bank.  Private banks are concentrated in the city 
of Basrah, though Basrah Investment Bank has a branch in 
Zubair district. 
 
¶7. (U) The following participated in a meeting with USAID and 
the Regional Embassy Office: Zuhair Ali Akbar, DG of Central 
Bank; Dawood Sakran Hassan, Manager of Trade Bank of Iraq; 
Mohammad Haji Kafaji, Director of Agricultural Bank; and Ali 
QMohammad Haji Kafaji, Director of Agricultural Bank; and Ali 
Salah Al Kadami, Deputy Director of Basrah Bank.  Their 
comments follow below: 
 
Trade Bank of Iraq 
------------------ 
 
¶8. (U) Established in Baghdad in November 2003, the Trade 
Bank of Iraq (TBI) opened a branch in Basrah in March 2007 to 
support foreign trade.  TBI's main activities in Basrah are 
letters of credit (L/Cs) and letters of guarantee.  Currently 
 
BAGHDAD 00000435  002 OF 002 
 
 
the greater part of foreign trade in Basrah is done with 
money transfers or cash in U.S. dollars.  L/Cs take time and 
require extensive documentation, so tend to be inconvenient 
for private businesses.  TBI Basrah's Hassan said that a 
program to improve the L/C process and educate private 
businessmen would increase the use of L/Cs.  TBI also takes 
savings deposits.  Most loans are for one year and mainly for 
trading and reconstruction activities.  Fifty percent of TBI 
Basrah's loan portfolio is with private firms that do 
business with the government. 
 
Basrah Bank 
----------- 
 
¶9. (U) Basrah Bank opened in 1993 and was the city's first 
privately-owned bank in the Saddam Hussein era.  Basrah bank 
is the only bank offering an international VISA credit card 
to its customers.  It charges interest of ten percent for 
dollar-denominated loans and 14 percent for Iraqi dinar 
loans.  Ali Salah Al Kadami said Iraq's private sector is 
still immature.  Bankers and private entrepreneurs still view 
each other with a certain degree of mistrust, he said.  The 
private sector's rate of loan repayment ration was low, and 
the property repossession law was difficult to apply, because 
it takes years in court for cases to be heard.  This makes 
mortgage lending challenging.  Ninety percent of Basrah's 
loan portfolio was in short-term loans (up to two years); 
five percent in medium-term loans (five years); and five 
percent in long-term loans (mostly real estate, up to 25 
years).  Basrah Bank currently has two branches in Basrah 
city, one in Al Zubair and another in the Hadi area. 
 
Agriculture Bank 
---------------- 
 
¶10. (U) Most of the Agriculture Bank's loans are short- and 
medium-term.  Different interest rates apply for two 
categories of farmers.  If nominated by the Director General 
of Agriculture, borrowers pay an interest rate of two 
percent.  Otherwise, they pay eight percent and need personal 
and private guarantees from up to five individuals.  Most 
loans are disbursed in two installments.  The farmers' 
repayment rate is 90 percent.  One reason for the high 
recovery ratio is that when a farmer returns for the second 
installment, any outstanding repayment amount is deducted. 
Agriculture Bank has 75 percent of its total loan portfolio 
in the agriculture sector, mainly with small farmers (up to 
20 donum).  The bank has expanded its business to include 
loans for domestic animals, date palm trees and machinery. 
Agriculture Bank has a branch in the city of Basra and 
another in Qurna. 
 
Trade Bank Training Request 
--------------------------- 
 
¶11. (SBU)  In a subsequent meeting at TBI Basrah on February 
2, the branch manager said that wealthy Basrawis did not keep 
their money in Iraq, but in Dubai, Jordan or Europe.  Income 
from oil smuggling was also sent outside the country.  Many 
bank transactions were still related to public-sector 
activity, and the private sector preferred cash transactions. 
 It is important to facilitate legitimate trade finance with 
Iran and other countries via bank transactions.  Cash 
transactions are not subject to oversight the way bank 
transactions are.  Dawood said that he would strongly welcome 
more training for his staff on L/Cs, managing credit cards, 
and automatic teller machines (ATMs).  The Treasury Attache's 
office in Baghdad is offering three training seminars on 
Letters of Credit for the provinces.  Central and Southern 
provinces will receive the three-day course in Baghdad; the 
Northern provinces will receive training in Erbil.  The focus 
of the training will be to increase the understanding of 
Qof the training will be to increase the understanding of 
using Letters of Credit by the provinces, however private 
banks will be invited to attend and sit in on each of the 
workshops.  The workshops are scheduled to be held in March, 
April and May of 2009. 
BUTENIS