Private banks unable to repay their clients
By Rawa Abdulla 17 hours ago [1/20/2018]
While many countries depend on bank debit cards, the Kurdistan region relies mainly on cash. Photo: AFP
ERBIL, Kurdistan Region — A university economics expert argues if there was good trust and coordination between private and central banks and the Ministry of Finance, the Kurdistan Regional Government (KRG) could overcome its financial crisis by revising its expenses and borrowing money from private banks.
According to figures compiled by the Kurdistan Region’s central bank, there are 91 banks and foreign bank branches in the Kurdistan Region. But they have not had a good role in reducing the impact of the financial crisis.
Luqman Othman, from the Department of Economy at Salahaddin University, said: “If there was good trust and coordination between private and central banks and the Ministry of Finance, the KRG would very easily overcome its crisis by paying salaries through cards and getting loans from private banks.”
In the past, private banks gave loans to the government. They reviewed their loan policy to people and the government when they realized the financial crisis would continue and the government could not pay off their debts. This further imbalanced the economic situation in the Kurdistan Region.
“Private banks were mainly giving loans to unrealistic service and trade projects in order to make quick profits. But they stopped these loans after austerity measures were imposed and demand on products declined and traders and investors couldn’t pay off their debt on time. That is why the role played by these banks has gradually waned,” Othman said.
Mansur Bank for Investment is an Iraq-Qatar bank with seven branches in Iraqi cities with branches being opened in Erbil and Sulaimani in 2006.
“Some private banks in Kurdistan have deviated from their main work because of weak monitoring by Iraq’s central bank and the regional central bank on private banks. These banks are engaged with turning things into cash instead of reducing the impact of the financial crisis through giving loans to the government and people. By doing this, they have harmed the Kurdistan Region’s economy,” said Sardar Pirbal Sarspi, the manager of Mansur branch in Erbil.
Sarspi thinks the KRG’s biggest mistake was to form an independent central bank and separate Kurdistan’s banks from Baghdad. This incurred much damage to the KRG and private banks because salaries of these banks’ employees were being paid for years on Kurdistan’s budget, and the KRG couldn’t benefit from the reserves of the Iraqi central bank in order to pass the crisis.
“By benefiting from the weakness of monitoring from the Iraqi Central Bank on Kurdistan’s banks, some private banks, especially those established for special reasons, have given no loans to people from the day they were established to date. Their main duty has been turning goods into cash,” Sarspi said.
Sarpi’s bank has lent the government 3.75 billion Iraqi dinars (about $3.2 million) and still continues investment and loans to people, especially to those who can repay the debt.
Izzat Sabir, an economy expert and the head of the Economy, Finance and Investment Committee of the Kurdistan parliament, spoke about the connection between people and banks and said: “Following the collapse of the Baath regime, substantial sums of money from Iraq came to the Kurdistan Region, and it was spent on peoples’ salaries and other affairs. If the banking system in the Kurdistan Region was advanced and people had trust in banks, the majority of the current cash in basements would have been in banks, and the government wouldn’t have faced the current financial crisis.”
Many countries use cards and bank accounts in order to pay salaries and expenses. They don’t deal with cash as much. That is why people don’t need to carry cash with them. Instead, they keep their money in the bank.
“If bank cards were active in the Kurdistan Region, most employees could get their salaries on time and economic growth in the Kurdistan Region would have been faster. The government’s mistake was that they ignored this system and used cash instead. The government faced the problem of giving salaries when there was no more cash,” Sabir said.
Sarspi added, “The empty checks hurt the government and private banks. They gave way to corruption and lack of trust between the government and private banks. Bank employees could buy a check for half price in the market and get the cash using the cheek through some nepotism. This caused the biggest loss to the government and private banks. Nowadays, most checks are held by private banks. There are banks which have bought checks worth of 100 billion Iraqi dinars (about $8.4 million).”
Due to the conditions of private banks in the Kurdistan Region, six private banks in Erbil have suffered a lot. Most of their cash has been lent out. That is why they cannot repay the cash deposited by people and are therefore under the supervision of the Iraqi Central Bank.
“According to the constitution, licenses to open or establish new banks and monitoring their properties is vested with the Iraqi Central Bank. That is why we don’t have much power on private banks, but are aware that a number of banks in Erbil are under the supervision of the Iraqi Central Bank because of their loans,” Abid Salih, Director General of central bank in the Kurdistan Region, said.