Iraqi PM decides foreign capital assessment at national banks as lawmakers urge amending banking laws

 Iraq's Prime Minister Mohammed Shia al-Sudani recently addressed the country's Central Bank (CBI) to specify the contribution of foreign capital to Iraqi banks and evaluate the current situation. 

Iraqi lawmaker Alia Nassif Jassim, also a member of the parliament's integrity commission, praised al-Sudani's action and called for amending the law regulating CBI and Iraq's Banking Law so that foreign entities can no longer possess a stake more extensive than that of Iraqi entities. 

In a post on the X platform on 29 April, she argued that foreign entities could influence financial decision-making in Iraq if they have shares exceeding 49 per cent, per the country's Banking Law No. 94 of 2004.

Jassim referred to her previous exposition of the corruption case of Al-Ahli Bank, saying billions of dollars were transferred out of Iraq.  

Iraqi MP Hussein Arab in October raised concerns about the dominance of Jordan's Al-Ahli Bank in Iraq, controlling up to 75% of daily dollar auctions compared to local banks receiving less than 20%. Arab criticised the preference given to foreign entities over Iraqi ones, questioning how the CBI allows a non-Iraqi bank such control. He highlighted that Jordanian banks receive billions of dollars monthly from Iraq, suggesting a potential threat to Iraq's economy and the value of the Iraqi dinar.

She also published a copy of a document issued by the office of Iraqi Prime Minister Mohammed Shia al-Sudani on 4 April asking the governor of ICB to specify the contribution of foreign capitals to Iraqi banks and evaluate the current situation to " benefit the Iraqi economy" as per the country's Banking Law No. 94 of 2004.

Al-Sudani initiated measures to revitalise the private banking sector by studying to enhance foreign currency support for overseas branches. The Central Bank of Iraq will determine foreign capital involvement in banks per Banking Law No. 94 of 2004, Iraq's State News Agency (INA) reported on 9 April, citing a governmental source. 

The Central Bank of Iraq Law No. (56) of 2004 (as amended) was issued on 6 March 2004 by The Coalition Provisional Authority, per relevant U.N. Security Council resolutions, including Resolution 1483 (2003). Among its objectives is to maintain price stability while supporting the continuous growth of the Iraqi economy.

The New Arab contacted Basim al-Awadi, the Iraqi government's spokesperson, and two Iraqi lawmakers from the parliamentary finance committee, but they were not immediately available to comment. 

"The banking market has a significant division. For example, the capital of private banks or their share of government funds is about 78 per cent, while the capital of government banks is 22 per cent," the economic and financial advisor to the Iraqi PM, Mazhar Mohammed Saleh, told INA on 11 April. "While government banks control activities and assets by 85 per cent, the private banking activity is 15 per cent. Thus, there are significant disparities between private and government banks."

He also explained that private banks have almost relied on government allocations, whether through the currency auction window by the CBI or by opening guarantees for projects. He pointed out that any disturbances expose private banks to severe problems. "Therefore, around 29 banks have been deprived of dealing in foreign currency," he added. 

"Private banks face a dilemma, especially after being deprived of trading in foreign currencies, although they have coped with this issue. Therefore, the government is trying to create a supportive internal environment for them, and they need to correct their situations first," he concluded.  

According to a statement by the parliament, the Iraqi parliament's finance committee met with the Iraqi Private Banks Association on 28 April to "discuss enhancing the banking sector and amending banking laws." The focus was on backing sustainable development and digital transformation in Iraq. Regular dialogues were stressed to optimise financial resources and tackle liquidity concerns. 

In March, the International Monetary Fund (IMF) said that Iraq in 2024  will witness overall growth, with risks decreasing despite heightened uncertainty. 

Iraqi government spokesperson Basim Al-Awadi announced a notable reduction in the country's external debt this month. ‌He told INA that the debt decreased from US$19.729 billion in 2022 to US$15.976 billion in 2023 and is projected to reach approximately US$8.9 billion by the end of 2024.

However, the significant increase in internal debt flux counters the decline in external debts. ICB reports that internal debt has surged from 38.3 trillion dinars (US$29.4 billion) in 2019 to 73.2 trillion dinars (US$56.3 billion).