This article was originally published by Niqash. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

By Ibrahim Saleh.

How To Get A Loan In Baghdad – At 30% Interest, Repaid In 3 Months

It’s tough to get a loan from Iraq’s undeveloped banking sector unless you fulfil certain, very specific criteria. But growing consumer desire and outrageous interest rates are forcing a change.

To get a loan from a bank in Iraq is difficult for many, not least because in order to be approved for one, often the borrower must bring along somebody who is employed by the government to guarantee them. In Iraq, a government-paid position is seen as the most stable kind of job you can get. It means you will get paid regularly and that eventually you’re in line for a pension.

The guarantee given by a state employee is needed for a personal loan, no matter how big the sum. And most banks want the state employee’s salary to be twice the monthly repayments for the loan. Additionally a state employee can only guarantee one bank loan at a time.

All of this makes getting a loan from a local bank difficult for anyone who is not a state employee, particularly for low-income Iraqi families. This is why they will often turn to money lenders who work unofficially.

One of these kinds of lending offices advertises on the wall of a kindergarten in the Al Dawoodi neighbourhood in the Mansour area, in Baghdad. The advertising targets shop owners and says the office can provide loans of US$1,000 to US$5,000.

The terms are strict: The loans need to be paid back within around three and a half months, the borrower needs to make daily repayments and the arrangement would end with the lender getting a 33 percent return on the initial sum.

That is a high return for a relatively modest sum, like US$1,000, under especially tough conditions. Although the interest rates are high and conditions tough, many low-income Iraqis don’t have any other option.

“It’s an important service because then you can get a loan without having to bring a government employee to a bank,” says Ali al-Rubaie, a Baghdad local who has loaned money before in this manner. “If I had a guarantor, I would have borrowed far more money though – to buy a car or an apartment,” he adds.

Upon calling the lending office to enquire as to how their procedures were managed, the staff refused to give NIQASH any further information, or deny or confirm if the office was licensed in any way.

However a former borrower divulged conditions they had been able to get a loan under. The applicant must submit a letter asking for a loan and the office then tries to ascertain whether the applicant would be capable of repaying the cash, including looking into guarantors or assessing any property they owned and their business.

In the case of the store owners this lender targets, the office looked at the business which, one imagines, gives them some sort of guarantee to begin with. If the application for a loan was accepted, the borrower had to sign a promissory note to receive the funds.

In another nearby neighbourhood, locals talk about a resident called Haji, who lends money on similar terms. They say Haji has been known to loan as much as US$20,000. And Haji – nobody we spoke with knew his full name – apparently decides whether a loan can be guaranteed by making enquiries with the community leaders, or tribal elders, in the applicant’s neighbourhood. He also requires that those senior community members agree to repay him if the borrower defaults on the loan.

From a legal point of view, there is nothing stopping anybody loaning money to any other Iraqi, says legal expert, Ali al-Tamimi. There are no legal restrictions on individual lenders, as opposed to institutions, unless there is fraud committed or contractual violations. Only at this point, would the courts get involved, al-Tamimi explains. So it’s all perfectly legal, despite the injustice of the high interest and short repayment times.

Iraqi banks know that it is hard for Iraqis to borrow money. In fact a lot of Iraqis still don’t have bank accounts and in general, the banking sector remains undeveloped. This is starting to change though, as local banks begin giving personal loans rather than just working on trade deals and with larger institutions and the government.

Banks are beginning to think about how they could extend credit more easily to ordinary citizens, agrees Faisal al-Haimus, the chairman of the Trade Bank of Iraq, first set up by the US authorities after 2003 to facilitate trade. “The bank is currently considering extending loans to people other than government employees,” he told NIQASH.

Lack of credit makes it difficult to bankroll property development and vehicle sales and also deprives banks of potential interest earned.

“Our company has proposed to the Iraqi central bank and other Iraqi banks that they cancel this condition – where the borrower has to bring a state employee – because it is impacting negatively on Iraqis’ ability to buy our cars,” says  Sabah al-Janabi, the public relations manager for Land Rover and Jaguar cars in Iraq. “They were actually quite open to our suggestions and we expect things to change in the future.”


Source: Iraq News

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TBI first Iraqi Bank to get B- from Fitch

Fitch Ratings has assigned Trade Bank of Iraq (TBI) a Long-Term Issuer Default Rating (IDR) of ‘B-‘ with Stable Outlook.

According to Saudi Gazette, this makes TBI the first bank in Iraq to get B- from Fitch.

IDRS AND VIABILITY RATING

TBI’s IDRs are driven by the bank’s Viability Rating (VR) and underpinned by potential sovereign support.

TBI’s VR of ‘b-‘ is constrained by the operating environment in Iraq, which can be volatile and challenging, and where TBI generates 85% of its business volume (on- and off-balance sheet exposure). Therefore, the operating environment and broader country risks influence TBI’s standalone risk profile.

TBI’s company profile is a relative strength for the rating. It captures the bank’s important trade finance role, as Iraq’s primary bank for financing imports, leading market share in Iraq (30% of sector assets), and largely government-led business in terms of lending, off-balance sheet transactions and customer deposit funding.

TBI was set up in 2003 by the Coalition Provisional Authority (the transitional government of Iraq at the time) with the support of a consortium of 13 major international banks from 13 countries, which provided technical and operational expertise. TBI is now fully operational and is systemically important to Iraq.

TBI’s key strategic objectives are to build a universal banking franchise in Iraq (with growth in domestic retail banking and project finance) and expand regionally through acquisitions. The latter is partly driven by the government’s efforts to reintegrate Iraq in the international financial markets. This also opens the bank to significant execution risks if the expansion is not managed adequately. The bank currently has a representative office in Abu Dhabi and has recently been granted licence to open a branch Saudi Arabia.

Asset quality is a rating weakness. TBI has a very high impaired loan ratio (41% at end-2017). Most impaired exposures were originated during 2014-2015 in a period of political turmoil and heightened security risks with the rise of ISIS in Iraq. Recent impaired loan generation is attributable to the drop in oil prices given the high oil dependence nature of the Iraqi economy (oil accounts for more than 50% of GDP). TBI’s impaired loans include both cash loans and trade finance facilities that got impaired (moved onto balance sheet). Under new management, TBI has made strong strides in recoveries, which total USD640 million to date in 2018 (2017: USD210 million).

TBI has a satisfactory funding and liquidity position, helped by substantial government deposits. Profitability is also satisfactory, with core net interest income growing in 2017 despite slow business volume growth due to conflict and low oil prices.

Capitalisation is a relative strength, with TBI reporting very strong regulatory Basel I total capital adequacy ratio and Fitch Core Capital ratio of 67% at end-2017. At the same time, these strong metrics should be viewed in the context of 0% risk weightings applied to all of TBI’s sovereign and government exposure. TBI is expected to report regulatory capital ratios under Basel III in 2019.

For now, TBI’s leverage, as defined by the bank’s tangible common equity/tangible assets ratio, which was a satisfactory 16.7% at end-2017, is a more reasonable measure of capitalisation in our view.

TBI has around USD3.7 billion equivalent of Iraqi dinar deposits trapped in the Kurdish region due to a political dispute with the central government, which would eliminate TBI’s equity if deducted. TBI expects to recover this amount due to ongoing discussions between both parties. These deposits are excluded from TBI’s reported liquidity ratios (Basel III liquidity coverage ratio of 186% and net stable funding ratio of 162% at end-9M18), which are very healthy.

SUPPORT RATING AND SUPPORT RATING FLOOR

TBI’s Support Rating of ‘5’ and Support Rating Floor of ‘B-‘ reflect Fitch view that sovereign support, while possible, cannot be relied upon.

Fitch believes that the authorities would have a strong propensity to support TBI in case of need. This considers the role played by TBI on behalf of the government, the bank’s systemic importance, as well as its 100% state-ownership. Nevertheless, Fitch’s view is that sovereign support cannot be relied upon given Iraq’s own creditworthiness (as indicated by the sovereign’s ‘B-‘ IDR) and potential delays in providing timely and sufficient support due to country risks including an uncertain political environment in Iraq.

RATING SENSITIVITIES

IDRS AND VR
TBI’s IDRs and VR are sensitive to a change in the Iraqi sovereign rating. They are also sensitive to further asset quality deterioration or an increase in country risk, leading to more challenging operating conditions. Finally, the VR is also sensitive to TBI making a major acquisition abroad that could materially change its overall risk profile.

SUPPORT RATING AND SUPPORT RATING FLOOR
TBI’s SR and SRF are also sensitive to a change in the Iraqi sovereign rating. They could be downgraded/revised if Fitch views that the state’s willingness to support the bank is diminishing, for example in the event of a change in TBI’s role or a material reduction in government ownership.

The rating actions are as follows:

Trade Bank of Iraq
Long-Term IDR assigned at ‘B-‘: Outlook Stable
Short-Term IDR assigned at ‘B’
Viability Rating assigned at ‘b-‘
Support Rating assigned at ‘5’
Support Rating Floor assigned at ‘B-‘

(Sources: Fitch, Saudi Gazette)


Source: Iraq News

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By John Lee.

The State-owned Trade Bank of Iraq (TBI) is reportedly looking to acquire a lender in Turkey, the country’s biggest trade partner, after abandoning a previous attempt.

Chairman Faisal Al Haimus is quoted by The National as saying that the TBI is keen on a conventional bank rather than a Sharia-compliant bank, but he declined to name a target.

Buying a Turkish bank would be the TBI’s first overseas acquisition, which will be financed from $350 million the lender earmarked for buying assets.

More here.

(Source: The National)


Source: Iraq News

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Iran, Iraq in Talks for Trade in Own Currencies

The central banks of Iran and Iraq are finalizing negotiations to begin trade in their own currencies, chairman of Iran-Iraq Chamber of Commerce said.

Speaking to Tasnim, Yahya Ale-Eshaq said negotiations between the central banks of Iran and Iraq are under way to reach an agreement on using rial and dinar in bilateral trade.

Once finalized, the agreement would allow the banks of the two countries to issue letters of credit on the basis of Iranian rial and Iraqi dinar, he added.

Ale-Eshaq also noted that the value of Iran’s exports to Iraq in the first eight months of the current Iranian year (March 21- November 21) reached $8 billion, equal to the total amount of exports to Iraq in the previous year.

On Saturday, secretary general of Iran-Iraq joint chamber of commerce, Hamid Hosseini, said the daily value of Iran’s exports to Iraq stands at $45 million and sometimes reaches $70 million.

Iraq’s new Foreign Minister Mohamed Ali Alhakim has made it clear that his country cannot cut off trade ties with Iran under the US sanctions, saying the value of annual trade between Iran and Iraq amounts to $12 billion.

(Source: Tasnim, under Creative Commons licence)


Source: Iraq News

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By John Lee.

US Energy Secretary Rick Perry spent the last two days trying to convince the Iraqi government that it’s in its best interest to cut energy ties with Iran.

But according to a report from Washington Examiner, his efforts have had limited success.

Perry tweeted:

“In bilateral meetings with Iraqi President @BarhamSalih, Prime Minister Abdul-Mahdi, and Speaker Mohammed Al-Halbousi I reaffirmed that the U.S. stands ready to assist the Iraqi people in transitioning from Iranian energy dependence to using their full domestic energy potential.”

Iran is Iraq’s neighbor and an important supplier of the natural gas that fuels the nation’s electric grid, which is crucial to Iraq’s economy and oil industry.

More here.

(Source: Washington Examiner)


Source: Iraq News

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KRG PM Barzani receives Lebanese Delegation

KRG Prime Minister Nechirvan Barzani received Lebanese Minister of Foreign Affairs Gebran Bassil, Minister of State for Combating Corruption Nicolas Tueni, and their accompanying delegation.

In the meeting, also attended by Kurdistan Regional Government ministers and senior officials, they discussed the political situation in Iraq including the post-election process, and the formation of the new Iraqi government and new Kurdistan Regional Government cabinet.

Minister Bassil thanked the Kurdistan Regional Government for its assistance and support to the Lebanese community. He emphasized the desire of Lebanon to strengthen relations with the Kurdistan Region, especially in the fields of investment, trade, tourism and culture.

Prime Minister Barzani reaffirmed the KRG’s support to Lebanese businessmen and investors. He praised the activities of the Lebanese community in the Kurdistan Region.

The political situation in the wider region was also discussed.

(Source: KRG)


Source: Iraq News

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