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Societal reluctance to make bank deposits in Iraq...the full story

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Societal reluctance to make bank deposits in Iraq...the full story
Economy     breaking     Iraqi banks     Dollar smuggling     US sanctions     Money laundering     Financing terrorism
2024-03-20 10:26
Shafaq News/ Iraqi citizens are afraid to continue depositing their money in local banks, fearing that they will later be unable to withdraw it as a result of the American sanctions imposed from time to time on banks operating inside the country.
There are many government and private banks spread in Iraq, as
their number throughout the country reaches 78 banks, including 7 government banks, one of which is Islamic, in addition to 28 private Islamic banks, and 25 commercial banks that include two branches in the Emirates and Saudi Arabia, in addition to 16 foreign commercial banks and two Islamic banks. Foreigners, and these banks have 891 branches, most of which were formed after the year 2003, in addition to opening a currency selling window in the Central Bank of Iraq.
Reasons for abstention
The economic expert, Omar Al-Halbousi, attributes citizens’ reluctance to deposit their money in Iraqi banks to a group of factors, the
first of which is “the citizen’s lack of confidence in the Iraqi banking sector,
especially after the collapse of a group of banks that have been in operation for several years, without returning depositors’ money despite their filing of complaints with the Central Bank and the Iraqi judiciary.”.
Al-Halbousi added in an interview with Shafaq News Agency, “Also, the
weakness of the Central Bank of Iraq in controlling and supervising the work of banks was another factor for citizens hoarding their money at home without depositing it in banks. In addition, the
ownership of private banks by people accused of corruption or external parties is one of the factors.” Citizens’ reluctance to deposit their money in the banking system.” He continues,
"Then came the American sanctions on a group of private banks, forming another factor in citizens' reluctance to deal with banks and deposit their money in them for fear of these banks' funds freezing or faltering and their inability to return depositors' money, since the banks depend on the dollar as the basis of their work, and there is no... “It has investment diversification that can compensate for that.”
“Based on the above, citizens’ reluctance to deposit their money in banks will increase with the increase in sanctions on banks,” Al-Halbousi says.
It is noteworthy that the US Treasury Department had imposed sanctions on 32 private banks out of 72 banks.
The sanctions imposed by the Treasury Department, according to Al-Halbousi, are divided into two types:
“The first is the penalty of preventing dealing in dollars while these banks can deal in other currencies.”  He added,
"The second type of sanctions is the Foreign Assets Management Office in the Ministry of the Treasury imposing sanctions on banks,
the latest of which is (Al-Huda Islamic Bank), which means that this bank is unable to deal in dollars, and foreign banks cannot deal with it due to its serious violations."  He explains that
"the sanctions imposed by the US Treasury Department on banks come due to their committing financial crimes, including (
     money laundering,
     financing terrorism,
     circumventing US sanctions,
     smuggling the dollar, and
     using forged commercial invoices)." He points out that
"the US Treasury Department had directed the Central Bank of Iraq to
     monitor the work of banks,
     follow up on their activities, and
     punish perpetrators of financial crimes." Al-Halbousi believes that
 “the Central Bank of Iraq overlooked this issue, which prompted the US Treasury Department to impose sanctions on these banks, knowing that the list of sanctions may be increased, and
there are banks that will soon be punished for committing financial crimes.
Sanctions will also be imposed on companies and individuals who constitute fronts for parties accused of terrorism.”. The economist believes that
"the first government agency to be punished is the Central Bank of Iraq and a group of its perpetrators, which will lead to a serious economic and financial setback." Al-Halbousi states,
 “The amount of cash exported by the Central Bank is 102 trillion Iraqi dinars until the end of December 2023, with
     60 trillion dinars being the size of deposits in government banks,
     13 trillion dinars being deposits in private banks, and
     93 trillion dinars being the size of the amount of cash outside.” The banking system.
Imbalance of financial inclusion
The Iraqi banking system suffers from a lack of citizens’ confidence in it, and
financial inclusion in Iraq faces major challenges related to the inability of citizens to achieve their financial ambitions with Iraqi banks.
Since Iraq suffers from a lack of financial inclusion, “this scientifically and practically hinders any attempt at sustainable development in light of the growing mismanagement and implementation of decisions and laws in accordance with political desires,” according to economic affairs researcher, Ahmed Eid. Eid explained to Shafaq News Agency,
 “Citizens’ cash deposits in banks are affected by several factors, foremost of which is the
     lack of governance and deterrent oversight against legal violations in disbursing funds, as well as
     interest rates related to loans.”  He continues,
"Also, there is a delay in modern technological activities in managing financial matters, and the failure to implement electronic payment in the correct manner, as electronic payment operations are still delayed, and there are no attractive offers for citizens."  The researcher in economic affairs confirms that
 “citizens prefer to save and store their money at home rather than deposit it in banks,
because the majority of banks in Iraq are unreliable and belong to influential parties,
which makes them vulnerable to bankruptcy at any time.
 As for government banks, they do not provide offers and facilities to citizens in order to "Push their desires into deposit."
Deposit in dollars and dinars
As for cash deposits, they may be in dollars or Iraqi dinars.
If they are in Iraqi dinars, the

     issue has nothing to do with American sanctions and

     there is no problem, and

     they continue to be implemented, according to the economic expert, Abdul Rahman Al-Sheikhli.  Al-Sheikhli added to Shafaq News Agency,
 “If the cash deposits are in dollars, it is worth clarifying at the beginning that the banking custom is that
     when a citizen deposits his money in the bank for current account purposes or as deposits for interest purposes, the
     depositor’s money remains circulating within banking channels from the same bank in which the citizen deposited his money, and it will not You go somewhere else."

When the citizen needs it, the money is returned to him in the same currency, because it did not leave the bank, but rather circulates within the banking channels of the bank itself,” according to Al-Sheikhly.  Al-Sheikhili points out that
 “sometimes there is a delay when returning funds, as in the past it was possible to resort to the Central Bank and withdraw funds from it in order to give the money to the depositor,
but currently withdrawals from the Central Bank in dollars are not allowed,
which requires returning the funds that were given as credit to others, so sometimes it may be delayed.” Delivery time.”  He notes that
"the bank is punished, held accountable, and its license is withdrawn if it hesitates and does not pay its obligations to citizens.
This is a sacred matter, but sometimes as a result of some behaviors that have occurred among banks in general, they have a shortage in banking liquidity."  He points out that,
 “During the entry of ISIS in 2014, all banks had letters of guarantee belonging to companies,
but these companies were reluctant to carry out their duties,
so the amounts of the letters of guarantee were confiscated, and as a result,
liquidity became scarce in some banks, and they stumbled,
but the solid banks Which has great liquidity and high cash masses estimated at trillions, not billions, has not faced a problem.”  Al-Sheikhly added,
 “The Central Bank also reserves part of the banks’ capital as a reserve, and can compensate through it.
There is also a deposit insurance company established by the Central Bank approximately 4 years ago, and
this covers part of the deficit that the bank may suffer from.”  He added,
"But this is in the event of the bank's bankruptcy, and
this matter only happened in one bank, which is (Basra International Bank), which declared bankruptcy, and
there is a move to restore its business, but the rest of the banks do not face a problem, this is on the one hand."  Al-Sheikhli continues,
 “On the other hand, the eight banks that were recently subjected to a ban on dealing in the dollar, this is the first time such a decision has been issued by the Central Bank of Iraq and not by the American administration, except for one bank (Al-Huda) of these eight banks, which was at the behest of the Ministry of the Treasury.” America to prove its relationship with the Iranian Revolutionary Guard.
As for the remaining seven other banks, the blocking decision (preventing their entry into the currency selling window) was temporary and for audit and supervisory purposes by the Central Bank, according to Al-Sheikhly. He points out that
"the window for selling the currency will gradually end during the year 2024, and the same will be the case for the electronic platform, so the extent of the negative impact of this ban on banks will not be of great benefit."  The economic expert explains this by saying,
 “The decision was issued by the Central Bank, in agreement with the US Treasury Department, to diversify the basket of currencies without limiting it to the US dollar, and on this basis accounts were opened for private banks abroad with solid foreign banks with foreign banking relations, and based on that, banks that withheld Regarding dealing in the dollar, working with all banking products except dealing in the dollar.”
Central bank standards
The Central Bank of Iraq supervises the work of banks in accordance with Law No. 56 of 2004, and a special law on money laundering and terrorist financing No. 39 of 2015 was enacted, and it began implementing this law on January 1, 2016.
The Central Bank began to impose on banks to apply global compliance standards, which forced banks to assign a manager to follow up on money laundering operations for all existing money movements in order to comply with international standards, according to economic expert, Abdul Rahman Al-Mashhadani.  Al-Mashhadani explained to Shafaq News Agency,
"But the problem is that a large portion of these banks did not adhere to the standards, and that whoever deals with the American side must adhere to its standards by preventing dealing with sanctioned countries. However, neither the banks nor the central bank nor even the government were able to convince the American side that this money “It is neither money laundering nor terrorist financing, but rather trade financing.” He explains,
 “Iraq imports from Iran about 25 to 30 million dollars daily, and how is this met in the absence of trade with them? Rather, we import and do not export to them, and whoever exports needs money?”  Al-Mashhadani continues,
 “The Central Bank of Iraq recently asked the banks to seek the assistance of experienced international companies to audit their work and programs during the past three years, so that when a report is issued by these companies, the American side will not claim favoritism in the report, because these companies are solid international companies, and the Americans are... Who proposed 5 companies, and that banks be transformed from shops into real banks.” He notes that
 “the problem is that the Iraqi banks are small, and
one of the conditions was for the banks to obtain a classification from the international classifications issued by international classification companies, whether (Standard & Poor’s) or (Moody’s) and others.
When a report is issued by these institutions, a report will be issued.” "Sober, and the American side will not object to it." The economic expert points out that
US sanctions
 “the number of Iraqi banks that are subject to US sanctions is 28 banks, and
they started with 4 banks (the first phase) in November 2022, which are (
     Al-Ansari Al-Islami for Investment and Finance, the
     Islamic Holding Company for Investment and Finance, the
     Iraqi Middle East for Investment, and Asia.”
     Iraq Islamic Investment and Finance).  He added,
"Then it was followed by 14 banks (the second phase) in May 2023, which are the banks (
     Islamic Advisor for Investment and Finance,
     Al-Qurtas Islamic Investment and Finance,
     Islamic Spectrum,
     Erbil for Investment and Finance,
     International Islamic Bank,
     Across Iraq,
     Mosul for Development and Investment, and
     Al Rajeh.),
     Sumer Commercial,
     International Islamic Trust,
     Ur Islamic,
     Islamic World for Investment and Finance, and
     Zain Iraq Islamic for Investment and Finance).  Al-Mashhadani confirms,
 “And then 8 banks were added to it last February, which are (
     Assyria International Investment,
     Iraqi Investment,
     Iraqi Union,
     Kurdistan Islamic International for Investment and Development,
     Southern Islamic Investment and Finance,
     Arab Islamic, and
     Hammurabi Commercial).”  He notes that
 “Hamad Al-Moussawi’s (Al-Bilad) Bank was punished, but it changed its name to (Al-Huda), and was punished again, so when Hamad Al-Musawi Bank is counted as one, the total is 27 banks, but when each penalty is calculated separately, Then there are two penalties, and thus the total is 28 banks.”   

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