Trust is a rare asset for Iraqi banks

Trust is a rare asset for Iraqi banks
Iraq’s biggest cities have private and public banks offering investment and credit, but businesses barely use them and individuals do not trust them. (AFP)
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Updated 03 December 2020

Trust is a rare asset for Iraqi banks

Trust is a rare asset for Iraqi banks
  • Many financial institutions are short on deposits and have risky credits

DIWANIYAH: The bustling streets of Iraq’s biggest cities are lined with private and public banks that promise investment and credit. But businesses barely use them and individuals do not trust them.

“Iraqi banks today are still so far away from global standards,” said Abbas Anid Ghanem, an Iraqi economist and lawyer based in the southern city of Diwaniyah.

The problems date back decades, Ghanem said.

In the 1990s, Iraq was isolated from the outside world by crippling sanctions on then-dictator Saddam Hussein that blocked financial transactions with the country.

Following the US-led invasion in 2003, widespread looting saw bank vaults emptied of any cash, even as businesses from around the world were flying into Iraq to sniff out reconstruction deals.

More than 70 banks have popped up since, but the sector as a whole remains underdeveloped.The three largest — Al-Rafidain, Al-Rasheed and the Trade Bank of Iraq (TBI) — are state-owned and hold about 90 percent of the entire sector’s assets, the World Bank said in 2018. The first two suffer from “capital deficiencies and asset quality problems,” the World Bank said, meaning they are short on deposits and have risky credits.

TBI was established in a 2003 decree issued by the Coalition Provisional Authority, which managed Iraq post-invasion.

“TBI was meant to help Iraq develop and rebuild, but it was affected by sectarian power-sharing and financial corruption,” said Ghanem.

Now, the bank is the Iraqi government’s main conduit for international transactions but provides few loan options or other services.

The top trio have been used mainly for paying salaries and pensions to eight million Iraqis.

But after collapsing oil prices this year drained state coffers, the government had to borrow from state-owned banks for those wages, increasing its domestic debt. Of the 60 private banks in Iraq, most are domestic and operate primarily as exchange houses.

Iraqi businessmen say that the banks’ unappealing profiles are hampering the development of the private sector.

“Iraq’s public banks don’t have the mechanisms for global transactions and don’t seek to draw in entrepreneurs,” real estate developer Adel Salhi said.

“TBI is the only one that allows investors to open lines of credit, but it does not offer professional services and it demands enormous guarantees — sometimes as high as 110 percent to deliver a letter of guarantee,” he said.

Salhi and his Al-Akhiar group have opted to use a foreign bank, like many other Iraqis who turn to Jordan, Turkey, Iran or Lebanon to facilitate their transactions.

Most companies in Iraq still operate in cash: only 26 percent use the formal banking system, the World Bank said. All but 2 percent pay their employees in hard currency and nearly half even pay their suppliers that way.

Less than five percent of Iraq’s small and medium-sized businesses have a domestic bank loan, with most borrowing from family and friends instead.

Ghanem said that is because business loans come with exorbitant interest rates up to 10 percent.

Despite being OPEC’s second-largest crude producer, Iraq is also ranked 172 out of 190 in the World Bank’s “Doing Business” report — barely ahead of Afghanistan or war-ravaged Syria.

For individuals, too, banks are a bane. There is little public trust in financial institutions, with many Iraqis still smarting over the looting of public banks in 2003 that cost them their life savings.


Intel avoids outsourcing embrace, investigates hack of results

Intel avoids outsourcing embrace, investigates hack of results
Updated 22 January 2021

Intel avoids outsourcing embrace, investigates hack of results

Intel avoids outsourcing embrace, investigates hack of results

The incoming chief executive of Intel Corp. said on Thursday that most of the company’s 2023 products will be made in Intel factories but he sketched a dual-track future in which it will lean more heavily on outside factories.
The lack of a strong embrace of outsourcing from new CEO Pat Gelsinger drove shares down 4.7% after hours. Shares rose 6.5% during regular trade, when the results were released ahead of the close. The company said it was investigating “non-authorized” access to some of the results, with the Financial Times quoting its chief financial officer as saying the microchip maker had been hacked.
Intel also forecast first-quarter revenue and profit above Wall Street expectations, continuing to benefit from pandemic demand for laptops and PCs that have powered the shift to working and playing from home.
Gelsinger said he was “confident that the majority of our 2023 products will be manufactured internally” though he also said the use of outside chip factories is likely to increase “for certain technologies and products.”
Intel has been considering since last July whether to drop its decades-old strategy of both designing and making chips by turning for help on its central processing units, or CPUS, to “foundry” manufacturers. Those partners could be Taiwan Semiconductor Manufacturing Co. and Samsung Electronics. Intel’s manufacturing technology, called a 7-nanometer process, is expected in 2023.
“We didn’t get our answer on which foundries and when,” said Patrick Moorhead of Moor Insights & Strategy. “They pushed the can down the road.”
Kinngai Chan, analyst at Summit Insights Group, said Intel is not likely to outsource its flagship chips.
“Intel’s 14-nanometer chip transistor speed has always been faster than what any foundry can offer even at 7-nanometer,” Chan said. “We believe it will increase its use of external foundries over-time — just not for its large-core CPUs.”
Keeping manufacturing in-house means higher investments. Bernstein analyst Stacy Rasgon questioned whether Gelsinger, currently the chief executive of VMware Inc. who previously spent 30 years at Intel and announced his intention to return just last week, has had sufficient time to dig into the issue.
“It was pretty obvious they were trying to borrow his credibility” when Gelsinger endorsed Intel’s delayed 7-naonmeter technology, Rasgon said.
Intel’s decision coincides with US lawmakers having passed bipartisan legislation to fund US chip manufacturing. But the new law has yet to specify funding levels or recipients, and Forrester Research analyst Glenn O’Donnell said Intel might take the opportunity to solicit US government support for domestic manufacturing.
Boosted by a new high-end PC processor, Intel regained some momentum in the PC market, with volumes of PC chips rising 33%, faster than the 26% rise for the overall PC market, according to data from IDC.
Data center group sales, which powered Intel’s growth over the past several years, were $6.1 billion compared with analyst estimates of $5.48 billion, according to FactSet data.
But sales to cloud computing customers, some of the largest and fastest-growing purchasers of data center chips, were down 15% in the fourth quarter. Data center chip operating margins were 34% in the quarter, down from 48% a year earlier.
“We think (data center) operating margins are going to improve as we get toward the second half of the year, when we expect to see a rebound in cloud” chip sales, Intel Chief Financial Officer George Davis said.
The company also raised its dividend by 5%.
The chipmaker said it expects fiscal first-quarter adjusted sales of $17.5 billion and adjusted earnings per share of $1.10, both ahead of analyst consensus, according to IBES data from Refinitiv.
Fourth-quarter revenue of $20 billion and adjusted earnings per share of $1.52 also beat Wall Street targets.