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Another setback in Iraqi money management
Friday, 03-15-2024, PM 9:15 Karar Al-Assadi 309
Written by: Dr. Bilal Al-Khalifa
Two days ago, last Wednesday, 3/13/2024, the international credit rating agency
Fitch announced the reduction of the credit rating of the Trade Bank of Iraq (TBI) to CCC+, and this is
due to the
government’s management of the file and its impact on the future of this sector. This includes
concerns about TBI's management and governance structure, the
scheduling of its financial reports and audits, and
pressures on the financial profile in particular as a result of
additional appropriation needs and litigation costs. Knowing that the
Iraqi Trade Bank is the only Iraqi bank that has the right to send remittances abroad, due to the sanctions imposed on Al-Rashid and Al-Rafidain Banks, and since the
Iraqi Trade Bank was established in July 2003 as an independent government entity for the purpose of facilitating the import and export of goods and services to and from Iraq in the service of the economy.
The National Bank, in fact, was the idea of the late Dr. Ahmed Chalabi to circumvent the sanctions that affected the Rasheed and Rafidain Banks of Iraq.
Credit rating means creditworthiness, or the ability of those banks to obtain the necessary loans, and the extent of their ability to fulfill their obligations on time.
Credit rating usually looks at several indicators, including:
• Assets owned by the entity requesting the loan..
• The ease of cash flows to it, whether internally or externally.
• His history of dealing with creditors, and the
interest rates at which he obtained his loans previously.
• In the case of countries, the rating agencies’ report usually addresses the
extent of political and security stability, and
its impact on the economic situation, especially the
ability to repay debts.
For your information, there are
three major institutions concerned with issuing credit reports on institutions and countries, namely
Moody's,
Standard & Poor's, and
Fitch,
which have been American institutions since their inception.
If a country's credit rating is strong, it means that it has creditworthiness that enables it to obtain loans and repay them on time, and
then the cost of financing obtained by the borrowing countries will be at its recognized minimum limits.
The opposite is also true, that is, the weaker the creditworthiness of a country, the
higher the cost of obtaining debt, and
it may even deter creditors from lending to it.
The rating levels of credit rating agencies range from
“AAA”, which expresses a “high security degree”, which is the highest rating of creditworthiness, although
it includes subsidiary grades such as
“AA” or
“A”. " (A), then the
"BBB" rating, which means "medium creditworthiness" and has different grades as in the previous rating, then the
"CCC" rating, which means "high-risk creditworthiness", then the rating The last one is
“DDD” which indicates “distressed creditworthiness”, and they have different grades as in the previous two classifications.
The seriousness of the news lies in the fact that the
Commercial Bank of Iraq is the only correspondent bank for Iraq and that
its classification is the last, that is, high risk, and thus
it has become close to defaulting.
Therefore, the news threatens the entire Iraqi economy, including the oil sector, because how can it pay the amounts of goods and services provided to it?
It also affects the dealings of international banks with him and the country he represents, and
thus reduces the flow of investor funds into the country because
it has become a high risk or
may develop due to the exit and flight of foreign investments from the country,
especially those indirect investments, which can quickly exit markets exposed to risk.
If this happens, i.e. the flight of investors, it may also lead to another decline in the local currency, which means inflation awaits the country and a new burden on the ordinary citizen.
With the reasons mentioned above for lowering the credit rating,
there is another important and fundamental reason, which is the
political decisions that are issued by the United States of America.
Therefore, some major countries are trying to set special standards for themselves, just as Germany called for Europe to have special standards.
https://www.non14.net/public/165222
Friday, 03-15-2024, PM 9:15 Karar Al-Assadi 309
Written by: Dr. Bilal Al-Khalifa
Two days ago, last Wednesday, 3/13/2024, the international credit rating agency
Fitch announced the reduction of the credit rating of the Trade Bank of Iraq (TBI) to CCC+, and this is
due to the
government’s management of the file and its impact on the future of this sector. This includes
concerns about TBI's management and governance structure, the
scheduling of its financial reports and audits, and
pressures on the financial profile in particular as a result of
additional appropriation needs and litigation costs. Knowing that the
Iraqi Trade Bank is the only Iraqi bank that has the right to send remittances abroad, due to the sanctions imposed on Al-Rashid and Al-Rafidain Banks, and since the
Iraqi Trade Bank was established in July 2003 as an independent government entity for the purpose of facilitating the import and export of goods and services to and from Iraq in the service of the economy.
The National Bank, in fact, was the idea of the late Dr. Ahmed Chalabi to circumvent the sanctions that affected the Rasheed and Rafidain Banks of Iraq.
Credit rating means creditworthiness, or the ability of those banks to obtain the necessary loans, and the extent of their ability to fulfill their obligations on time.
Credit rating usually looks at several indicators, including:
• Assets owned by the entity requesting the loan..
• The ease of cash flows to it, whether internally or externally.
• His history of dealing with creditors, and the
interest rates at which he obtained his loans previously.
• In the case of countries, the rating agencies’ report usually addresses the
extent of political and security stability, and
its impact on the economic situation, especially the
ability to repay debts.
For your information, there are
three major institutions concerned with issuing credit reports on institutions and countries, namely
Moody's,
Standard & Poor's, and
Fitch,
which have been American institutions since their inception.
If a country's credit rating is strong, it means that it has creditworthiness that enables it to obtain loans and repay them on time, and
then the cost of financing obtained by the borrowing countries will be at its recognized minimum limits.
The opposite is also true, that is, the weaker the creditworthiness of a country, the
higher the cost of obtaining debt, and
it may even deter creditors from lending to it.
The rating levels of credit rating agencies range from
“AAA”, which expresses a “high security degree”, which is the highest rating of creditworthiness, although
it includes subsidiary grades such as
“AA” or
“A”. " (A), then the
"BBB" rating, which means "medium creditworthiness" and has different grades as in the previous rating, then the
"CCC" rating, which means "high-risk creditworthiness", then the rating The last one is
“DDD” which indicates “distressed creditworthiness”, and they have different grades as in the previous two classifications.
The seriousness of the news lies in the fact that the
Commercial Bank of Iraq is the only correspondent bank for Iraq and that
its classification is the last, that is, high risk, and thus
it has become close to defaulting.
Therefore, the news threatens the entire Iraqi economy, including the oil sector, because how can it pay the amounts of goods and services provided to it?
It also affects the dealings of international banks with him and the country he represents, and
thus reduces the flow of investor funds into the country because
it has become a high risk or
may develop due to the exit and flight of foreign investments from the country,
especially those indirect investments, which can quickly exit markets exposed to risk.
If this happens, i.e. the flight of investors, it may also lead to another decline in the local currency, which means inflation awaits the country and a new burden on the ordinary citizen.
With the reasons mentioned above for lowering the credit rating,
there is another important and fundamental reason, which is the
political decisions that are issued by the United States of America.
Therefore, some major countries are trying to set special standards for themselves, just as Germany called for Europe to have special standards.
https://www.non14.net/public/165222
