Private banking sector challenges and visions of reform

10/13/2020

Samir Al-Nasiri
Samir Al-Nasiri

The complex economic conditions and the repercussions of the spread of the Corona virus, and the political quarrels and conflicts by political parties and blocs that have led to great damage to the national economy, stalled the economic cycle and economic stagnation, in addition to the accumulations and repercussions in the absence of a clear economic approach for governments are not hidden from the specialists and the banking cadres working in the private banking sector. And since the banking sector is the main link in the revitalization of the economic process, the current circumstances have contributed to the weakness of banking activity, which had clear effects on the lack of liquidity and revenues and the decline in deposits, credit and loans 

And banking facilities due to the interruption of working hours during the comprehensive curfew for more than 30 days and the reduction in working hours and banking activity during the partial curfew,
which led to a significant decrease in revenues, and 
 despite the many measures taken by the Central Bank in providing a package of many facilities to banks, including enhancing their liquidity by reducing the legal reserve ratio and postponing Loan installments and suspension and postponement of fines imposed on banks.
 According to the analysis of official data and statistics, the structure of the Iraqi banking sector consists of 7 banks that acquire 86% of the total deposits of the government and the public and 78% of the total assets, and private banks constitute 72 commercial and Islamic banks and invest 78% of the capital of the Iraqi banking sector and have 
only received 13 % Of the total annual profits achieved at the total level and the goals
 The decree for the banking sector in all government programs of previous governments is focused on achieving lending for development, considering banks as a lever of development, restoring confidence with the public, and
 achieving financial inclusion in the sense of expansion and spread by providing banking products and services, practicing real banking and digital transformation of the banking sector.
 Through an analytical view of the reality of the Iraqi economy and the challenges facing the financial and monetary policies, in particular stimulating and revitalizing the economy with bank financing and banking facilities, the above challenges stand in front of its implementation at the present time despite the great efforts made by the Central Bank since 2016 to implement the objectives of its strategy for the years (2016-2020) which It achieved important and basic objectives, most notably the structural, structural and technical developments in banks, increasing the proportion of financial inclusion and investment in human capital, and moving rapidly towards stability in the monetary system and achieving stability in the exchange rate since 2018,
 but private banks are still  in urgent and immediate need for government support through a study Its problems in the current situation in the emergency cell for financial reform formed in the Council of Ministers for the purpose of saving some private banks from collapse. Therefore, we propose the following: -

 Firstly ‐ The nature of bank activities depends on the nature of the activities of the economic sectors, and as long as the economic activity is concentrated in trade (imports), the activity of banks remains focused on external transfer and what is related to that .. So unless other sectors move (industry, agriculture, tourism, etc.) we cannot expect the diversity of activity Banker.
It is worth noting that without controlling imports, these sectors will not rise, which explains the lack of progress on serious loans through the central bank’s initiative to finance small and medium enterprises.

Secondly, the legal environment must be provided and the authority of the law extended in order to eliminate the phenomenon of default in the payment of loans, as the bad debts amounted to the limits of (5 trillion dinars) up to 30 / June / 2020, which constitute a large percentage of the total credit granted and thus the reluctance of banks to provide loans and banking facilities 
Therefore, we see that the decisions of the Council of Ministers and the Economic Affairs Committee in the Council of Ministers, which were previously issued in support of the banking sector, in particular private banks, were not activated. It hindered the business and activities of private banks and greatly affected their liquidity, revenues and deposits, for the purpose of overcoming the banking crisis, in a manner that guarantees the transfer of banks from the role of banking to the developmental role and revitalizing the banking work in the current situation requires the government, especially the distinguished cabinet and the emergency cell, to activate the decisions previously issued The Council of Ministers and the Economic Affairs Committee, which are as documented by the following numbers and dates: -
 Third ‐ Activate all the decisions of the Special Economic Affairs Committee to support private banks, in particular the following:
-1 The Ministry of Finance changed its decision not to accept the opening of bank accounts for ministries and state departments in private banks and restricted them to government banks according to its letter 207 dated 1/31/2019
2 ‐ Activate The decision to allow ministries and government departments to open 
documentary credits in private banks up to $ 50 million without going through the Ministry of Finance and the Iraqi Bank for Trade.
3 Activate Cabinet Resolution No. 110 of 2009 and Economic Affairs Committee Resolution 141 dated 20/2/2012
regarding transferring government bank documentary credits up to $ 30 million to private banks through the Iraqi Trade Bank.
4 Activate the Economic Affairs Committee Decision No. 253 of 2015.
Concerning the acceptance of the instruments certified by private banks to pay insurances, customs fees and taxes.
Fourth ‐ Activate Cabinet Resolution No. 378 of 2018 regarding the collection of government fees in state departments through electronic payment.

Fifthly Activate the Financial Services Court formed according to the Central Bank Law No.
Sixth: Considering bad debt claims owed by customers in private banks as urgent and excellent debt cases, similar to government debts.
Seventh, in addition to the efforts exerted by the Central Bank, the government must also work to create conditions and take measures to help private banks obtain an internationally approved credit rating, thus strengthening international banking relations with correspondent banks.
Eighth - The Ministry of Finance compensated for the damage in cash and fixed assets that were lost by the branches of private banks, which amount to (37) branches in the governorates occupied by the terrorist ISIS in 2014 and are documented by the Central Bank of Iraq.
Ninth ‐ Activate Cabinet Decisions No. 313 for the year 2016 and No. 218 for the year 2017 concerning the resettlement of salaries of employees and ask government departments to localize their salaries according to their desire and not direct them to settle salaries exclusively in government banks.

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