Despite Progress, Banks in Kurdistan Region Remain Underdeve

[Aslan]

ERBIL, Kurdistan Region – Due to a traditional mistrust of saving money at banks and a banking system still largely in its infancy, most people in Iraq’s autonomous Kurdistan Region prefer to keep their money at home.

“People don’t trust banks because there is no guarantee that their money will be safe,” says Rizgar Hassan, a 41-year-old shopkeeper in Erbil.

Hassan acknowledges that he needs a bank account to keep his savings and enjoy other benefits, but like many other Iraqi Kurds he still remains reluctant about trusting the evolving Kurdish banking system with his hard-earned cash.

Majed Mala, the manager of the Erbil Investment and Finance Bank, says the banks have done everything in their power to gain the people's faith. “When they don’t put money in the banks, that is their choice,” he adds.

But Khalid Habib, executive manager of the Kurdistan International Bank for Investment & Development, says that people are unaware of developments in banking, and blames the government for not educating them.

Shler Adnan, 24, who has lived in Erbil all her life, says, "When I say there is no trust, it's not because I don't have trust in banks. I say it because the whole idea is something new to the Kurdish people,"

Years of war and persecution are partly to blame for this cold relationship between banks and people in the region. To escape persecution, especially under ousted Iraqi dictator Saddam Hussein who was overthrown a decade ago, the Kurds often had to run for the mountains on short notice. At times like these, the little money they had was best kept at home for a quick getaway.

Under Saddam, most banks were state owned, allowing them to routinely seize private assets, delete accounts and pass conflicting regulations. This subsequently left the people of Kurdistan "weary of banks, a legacy that continues today," according to a recent report from the Investment Group LLC.

Since gaining autonomy after 2003, the Kurdistan Region has created its own economic system, which includes advancements in developing a sustainable banking system.

According to the Kurdistan Board of Investment, 16.67 percent of the region’s capital investment is dedicated to the banking sector, which constitutes about $2.3 billion in investment projects. The ruling Kurdistan Democratic Party’s (KDP) own bylaws state that it remains committed "to rebuild and activate the financial and banking sector of Kurdistan and to rehabilitate them to gain the trust of the citizens."

To date, the Kurdistan Region consists of two state-owned central banks, 14 state-owned regional banks and 30 privately owned banks with branches spread across the region, the report states.

"Despite the involvement of foreign branches and the continued growth of local banks, the banking sector of Kurdistan requires further modernization and development,” it adds. “The continued operation of local banks coupled with further involvement from established foreign banks is expected to force the changes in current banking regulations," it says.

But these commitments do little to reassure news of banking irregularities reported by the media.

In the past three years, the Federal Bank of Erbil has had two incidences of billions gone missing due to corruption and embezzlement. In 2012, $25 billion Iraqi dinars ($21.4 million) went missing, reportedly embezzled by a bank worker and private contractor. Just two years earlier, 2.4 billion Iraqi dinars went missing from the same bank and led to the arrest of the head of the bank and his accountant.

Reports from Sulaimani indicate that banks have been unable to pay individuals and small businesses the money that is owed to them, because leaders from the Patriotic Union of Kurdistan -- the ruling party in the area – withdrew billions from banking deposits after news last December that PUK leader Jalal Talabani – who is also Iraq’s president -- had suffered a stroke.

The Iraqi National Investment Commission reports that there are currently 43 banks in Iraq, in addition to the Central Bank of Iraq (CBI). And there are nine banks with 200 branches in Iraq that have full ATM capability, according to the commission.

“At present, each card-issuing bank operates its own system. Because not every point of sale is connected to every system, no one card will work everywhere,” according to USAYS’s Iraq Financial Development Project.

In November, the CIB and USAYS’s Iraq Financial Development Project on “Integrating the Banking and Financial Sector in Iraq” held a conference in Istanbul, Turkey proposing a solution to “connect all of Iraq’s ATM machines and credit card point-of-sale scanners to a common platform.”

With the help of investment and other foreign banks coming into the market, the banks could have the ability to give the people of Kurdistan the banking system that is promised to them, but investment professionals say that may not be the case.

Herish Muharam, head of the Kurdistan Board of Investment, says in the report with Invest Group, that red tape by CBI creates a major deterrent for foreign investors and banks in the Kurdistan Region. He says that even though small projects have progressed, he still does not see a very significant, positive or tangible intervention from the banks in the investment sector.