Iraq’s banking system is notoriously unstable, competitive, unsecure and riven by political infighting. MPs say they’re trying to improve the banking system but in the meantime, locals are still keeping cash in a box under the bed
Saleh Majid owns an electrical supplies shop in Baghdad’s busy Shorja market area. And every day after the close of business, he takes all the money he has made that day home with him; he won’t deposit it in any Iraqi bank.
This is because Majid had been a customer of Iraq’s Warka Bank for Investment and Finance, the country’s largest privately owned bank. In early 2012, the Warka Bank was declared insolvent by Iraq’s Central Bank and placed under management appointed by the Central Bank.
“When the bank loses its capital, fails in its financial operation and faces an unsolved problem, the Central Bank according to its law, intervenes as a guardian and appoints a new temporary administration to run this bank,” the deputy governor of the Central Bank, Mudher Saleh Kasim, told news agency Reuters at the time.
Unfortunately for customers like Majid, this meant they lost money. Majid was only able to get about 20 percent of his savings back.
The situation was a fraught one: some bankers accused the Iraqi government of manufacturing excuses to attack Warka Bank because the success of the private bank was threatening business done by state-owned banks.
People are reluctant to deposit money in Iraqi banks for several reasons, says deputy Minister of Finance, Fazil Nabi, who actually recently submitted his resignation due to unresolved issues between Baghdad and semi-autonomous region of Iraqi Kurdistan.
“Some banks are bankrupt,” Nabi explains. “And there has also been a rash of armed robberies targeting state-owned banks. All this makes the people of Baghdad reluctant to deposit their money with local banks.”
Khalid al-Wasiti, a university professor, doesn’t have a particularly positive story to tell either. Al-Wasiti wanted to deposit his money with a bank because of a high rate of robbery in the area in which he lived in Baghdad. He deposited his cash at one of Iraq’s two major state banks – these are Rafidain and Rashid – in the hopes that his money would be safer in a state-owned and operated enterprise.
“So I deposited my money but when I went back three months later I discovered that the bank clerk had left a zero off the
deposit slip,” al-Wasiti explained. “He had written 3 million dinars [US$2,500] instead of 30 million. It took months to get that money back, and I only got it back once the bank had done major accounting and found a surplus.”
According to the Iraqi Central Bank’s website, the country has 23 privately owned banks, seven government-owned banks and nine Islamic banks, as well as around 16 foreign banks, to choose from.
To try and resolve some of locals’ issues with local banks, the Iraqi parliament’s committee on finance says it is planning a law to protect deposits.
“Besides financial stability, we’re also trying to improve the performance of Iraqi banks, both private and state-owned,” MP Majida al-Tamimi, a member of the committee, told NIQASH. “If we can enact this law, then citizens will start to trust their banks more. They’ll have the courage to deposit their money there and to invest in projects the banks support, in order to earn interest or profit.”
“Most of the privately-owned banks welcome the committee’s suggestions,” says Muslih al-Waeli, of the privately owned North bank of Iraq. Waeli also suggests that the government create some kind of organisation that would be able to secure locals’ bank deposits.
“Addressing the Iraqi peoples’ reluctance to deposit their money into local banks is an issue that needs to be dealt with in a transparent and professional manner,” says local financial analyst, Sabri al-Khalidi. “It is the government’s responsibility and this must be done so that it facilitates financial and economic progress in Iraq.”
It remains clear though that Iraq’s banking sector still leaves a lot to be desired. In March of 2013, a delegation from the International Monetary Fund, or IMF, met with representatives from the Ministry of Finance and the banking sector.
“Developing a stronger financial sector development will require moving away from the current model in which weak state-owned banks dominate the financial sector and enjoy favourable treatment vis-a-vis private banks,” a press release issued by the IMF after the meetings, said. “Financial sector policies are improving, but more remains to be done. A solid banking system that can support growth and employment will require the full financial and operational restructuring of state-owned banks and creating a level playing field for both private and public banks.”
The Currency Newshound 
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