BAGHDAD, 21 July 2004 — London-based HSBC PLC has bought a majority stake in Iraq’s Dar Al-Salam bank to facilitate its entry into the country, Iraqi officials and Arab bankers familiar with the deal said yesterday. “They have submitted an application to the central bank of Iraq to approve the deal,” a senior Iraqi financial official told Reuters. HSBC, the world’s second-biggest bank by market value, was not immediately available for comment.An Arab banker said HSBC bought a 51 percent stake in Dar Al-Salam, which is owned by the Khudairy family, and will put up cash to raise the Iraqi bank’s capital to meet new central bank rules.
The now disbanded US-led occupation authority gave HSBC, Standard Chartered PLC and the National Bank of Kuwait permission in January to set up in Iraq. They have until the end of 2004 to establish themselves in the country.
The three foreign banks beat 12 others that also applied for banking licenses. They did not envisage that instability would persist in the country, and it remains to be seen whether they can meet the central bank’s deadline to open by January. Dar Al-Salam is one of 17 small private sector banks in Iraq, which are trying to meet a new central bank requirement to raise their capital to 10 billion dinars ($6.8 million).
Foreign banks were banned from Iraq throughout 35 years of Baathist rule. Saddam Hussein allowed private Iraqi banks to operate in the 1990s, but a crippling economic embargo and over-regulation damaged the system, which also includes two main state banks.
HSBC is the third known foreign bank to buy a stake in an Iraqi counterpart.
The National Bank of Kuwait is finalizing a deal to buy 85 percent of the Credit Bank of Iraq, a private sector bank owned by the Kubba family. Some other banks also seek to operate in Iraq without directly applying for licenses, which require applicants to pledge a minimum capital of $25 million.
Jordan’s Export and Finance Bank has acquired a 49 percent stake in Iraq’s National Bank, another private sector bank. The deal, signed around the beginning of this year, is set to win central bank approval in a few weeks.
“We solved a legal problem which had prevented central bank approval,” said National Bank Chief Executive Ghassan Jamil. He was referring to the Iraqi central bank’s insistence that legal disputes should be settled in Iraqi courts.
