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The private banking sector challenges and strategy to activate its role in sustainable development
Economic and Banking Adviser Samir Al-Nasiri
Articles
Samir 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, the stopping of 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 The precedent, the uncertainty, and the confusion of the vision for real economic reform.
Since the banking sector is the main link in the activation of the economic process, the current circumstances have contributed to the weakening of banking activity, which had clear effects on the lack of liquidity and revenues, the decrease in deposits, credit, loans and banking facilities due to the suspension of working hours during the comprehensive curfew for more than 30 days and the reduction of working hours and banking activity during Partial curfew, resulting in a significant drop in revenue.
In spite of the many measures taken by the Central Bank to provide a package of many facilities to banks, including enhancing their liquidity by reducing the legal reserve ratio, delaying loan installments, and stopping and postponing the fines imposed on banks.
Based on 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 received only 13% of the total annual profits achieved.
On the aggregate level, the goals set for the banking sector in all government programs of previous governments focus on achieving them, which is lending for development and 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 has achieved important and basic goals, most notably the structural, structural and technical developments in banks, increasing the percentage 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 suggest the following: -
First, the nature of banks ’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.
Therefore, unless other sectors (industry, agriculture, tourism, etc.) move, we will not expect banking activity to diversify.
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 facilities
Therefore, we see that the failure to activate the decisions of the Council of Ministers and the Economic Affairs Committee in the Council of Ministers, which were previously issued to support the banking sector, in particular private banks, led to obstruction of the business and activities of private banks and greatly affected their liquidity, revenues and deposits for this and for the purpose of overcoming the banking crisis in a manner that ensures the transfer of banks From the role of banking to the developmental role and revitalizing the banking business in the current circumstance,
the government, particularly the distinguished cabinet and emergency cell, is required to activate the decisions previously issued by the Council of Ministers and the Economic Affairs Committee, which are as documented by the following numbers and dates: -
Thirdly, activating all 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 No. 207 on 1/31/2019
2 Activating 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 Trade Bank.
3 Activating 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 regarding the acceptance of instruments certified by private banks to pay insurance, customs fees and taxes.
Fourthly, activating Cabinet Resolution No. 378 of 2018 regarding the collection of government fees in state departments through electronic payment.
Fifth: Activating the Financial Services Court formed according to the Central Bank Law No.
Sixth: Considering bad debt claims owed by clients in private banks as urgent and excellent debts 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 assist private banks in obtaining 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 lost by the branches of private banks, which amount to (37) branches in the governorates occupied by the terrorist ISIS in 2014, which are documented by the Central Bank of Iraq.
Ninth, activating Cabinet Decisions No. 313 of 2016 and No. 218 of 2017 regarding resettlement of employees' salaries and requesting government departments to localize their salaries according to their desire and not directing them to settle salaries exclusively in government banks.
* A banking advisor and economist
Number of observations 51, date of addendum 02/07/2021
The private banking sector challenges and strategy to activate its role in sustainable development
Economic and Banking Adviser Samir Al-Nasiri
Articles
Samir 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, the stopping of 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 The precedent, the uncertainty, and the confusion of the vision for real economic reform.
Since the banking sector is the main link in the activation of the economic process, the current circumstances have contributed to the weakening of banking activity, which had clear effects on the lack of liquidity and revenues, the decrease in deposits, credit, loans and banking facilities due to the suspension of working hours during the comprehensive curfew for more than 30 days and the reduction of working hours and banking activity during Partial curfew, resulting in a significant drop in revenue.
In spite of the many measures taken by the Central Bank to provide a package of many facilities to banks, including enhancing their liquidity by reducing the legal reserve ratio, delaying loan installments, and stopping and postponing the fines imposed on banks.
Based on 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 received only 13% of the total annual profits achieved.
On the aggregate level, the goals set for the banking sector in all government programs of previous governments focus on achieving them, which is lending for development and 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 has achieved important and basic goals, most notably the structural, structural and technical developments in banks, increasing the percentage 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 suggest the following: -
First, the nature of banks ’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.
Therefore, unless other sectors (industry, agriculture, tourism, etc.) move, we will not expect banking activity to diversify.
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 facilities
Therefore, we see that the failure to activate the decisions of the Council of Ministers and the Economic Affairs Committee in the Council of Ministers, which were previously issued to support the banking sector, in particular private banks, led to obstruction of the business and activities of private banks and greatly affected their liquidity, revenues and deposits for this and for the purpose of overcoming the banking crisis in a manner that ensures the transfer of banks From the role of banking to the developmental role and revitalizing the banking business in the current circumstance,
the government, particularly the distinguished cabinet and emergency cell, is required to activate the decisions previously issued by the Council of Ministers and the Economic Affairs Committee, which are as documented by the following numbers and dates: -
Thirdly, activating all 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 No. 207 on 1/31/2019
2 Activating 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 Trade Bank.
3 Activating 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 regarding the acceptance of instruments certified by private banks to pay insurance, customs fees and taxes.
Fourthly, activating Cabinet Resolution No. 378 of 2018 regarding the collection of government fees in state departments through electronic payment.
Fifth: Activating the Financial Services Court formed according to the Central Bank Law No.
Sixth: Considering bad debt claims owed by clients in private banks as urgent and excellent debts 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 assist private banks in obtaining 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 lost by the branches of private banks, which amount to (37) branches in the governorates occupied by the terrorist ISIS in 2014, which are documented by the Central Bank of Iraq.
Ninth, activating Cabinet Decisions No. 313 of 2016 and No. 218 of 2017 regarding resettlement of employees' salaries and requesting government departments to localize their salaries according to their desire and not directing them to settle salaries exclusively in government banks.
* A banking advisor and economist
Number of observations 51, date of addendum 02/07/2021
