After Syria and Egypt destroyed the traditional notion of the safe bet, a country that once appeared to be an untamed frontier and a risky investment has banks salivating for its untapped potential: Iraq.
"There is a potential risk. [But] do you accept the risk or not?" asks BLF's Raphael when asked about the bank's decision to open in Baghdad by year's end. Byblos Bank made the first move when it opened its Erbil branch in Iraq in 2007, and another one in Baghdad three years later. While the decision was bold, talks of Iraq becoming the next business hub had plenty of foreign investment pouring in to the country, including those of Lebanese banks.
Both International Bank of Lebanon and Bank of Beirut and the Arab Countries banks have branched out to Erbil, while Bank of Beirut has one representative office in Baghdad. The race to Iraq was on after the Iraqi government's efforts to attract foreign banks through 10-year tax-free status and guarantees of privatization. Of course, the country offers less than favorable conditions for running businesses smoothly, but aside from Iraq's evident security risk, banks and financial institutions in particular face a somewhat nationalized, loosely regulated banking sector and a public that doesn't trust it. Up until 2003, operations such as international transfers and opening foreign currency letters of credit were off limits for banks in Iraq.
But Chawki Badr, head of international expansion at BBAC, says he believes that there is money to be made from the mayhem in Mesopotamia, as opportunities lie in the country's dire need for investments away from oil, and into reconstruction and infrastructure.
"Iraq's economy is 95 percent dependent on oil. There is quite the potential to develop other sectors, especially the banking sector," says Badr, adding that to date, government banks account for 85 percent of the overall balance of deposits of banks operating in Iraq.
As for expansion elsewhere, Badr says that the quick pace of change in the MENA region calls for a wait-and-see mood, at least for now. "In the short run, the unrest will be costly in terms of cash inflows, production and investment. But in the long run, the tide will turn if the region successfully transitions towards developing institutional structures, regulating governance and promoting freedom," he adds -- a recipe for success in more than just banking.
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