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ADIB among banks planning Iraq expansion amid oil boom
Iraq, April 6, 2014

Abu Dhabi Islamic Bank (ADIB) is the latest lender after JPMorgan, Citi and Standard Chartered to expand business in Iraq as the oil-rich country boosts crude production and rebuilds its infrastructure.

ADIB, the only UAE lender to operate in Iraq, plans to open a branch in Basra before the end of the year after it opened a branch in Erbil in October. The bank obtained a licence from Iraq’s central bank in 2010 and opened its first branch in Baghdad shortly after.

There are still plentiful opportunities that Arabian Gulf lenders can take advantage of, says Jaap Meijer, the head of research at Arqaam Capital, an investment bank in Dubai.

“Lenders can open subsidiaries or enter the market through acquisitions of existing banks with established networks,” Mr Meijer said. “For example, Dar es Salaam Bank, in which HSBC is looking to divest its stake, we believe is a potential takeover target for one of the GCC banks.”

Iraq’s economy is expected to grow by 6.3 per cent this year, up from 3.7 per cent growth last year, according to the IMF.

The country, which is Opec’s second-largest producer, raised its crude oil production by 530,000 barrels per day (bpd) last month to 3.6 million bpd. The figure is the highest since 1979.

The country plans to boost its output to 4.5 million bpd this year.

“With Iraq rebuilding its economy through investing in its infrastructure, energy and industry, we are seeing growing demand for our banking services, from foreign companies doing business in Iraq as well as from local companies that are looking for capital and world class services,” ADIB said.

“We are in the process of extending our branch network and launching a new consumer banking solution that includes long-term deposits accounts, auto finance and property finance in the near future.”

In 2003, JP Morgan helped to set up Trade Bank of Iraq (TBI), the biggest lender in the Iraq and the first to receive lines of credit with international banks after the removal of Saddam Hussein from power. In July, JPMorgan said it would expand its business in the country and signed a one-year agreement with TBI to finance imports of goods and services through letters of credit.

Citigroup set up an Iraq equities desk operating out of Amman two years ago.

The bank in June said it planned to open a representative office in Baghdad and branches in Basra and Erbil to capitalise on the country’s oil boom.

“The branches would help provide liaison functions for Citi’s clients globally and contribute to the development of Iraq’s banking and capital markets,” it said at the time.

Several foreign banks – including Capital Bank of Jordan, HSBC, National Bank of Kuwait and Ahli United Bank of Bahrain – have already set up in Iraq, but they have entered through partnerships with local banks.

In the past, foreign banks shied away from opening branches under their own names because of security concerns. ADIB is only the second foreign bank to enter the market by starting a branch from scratch rather than through a partnership. The first foreign bank to do so was Byblos Bank of Lebanon.

ADIB “is already a fully fledged corporate and consumer bank in Iraq, providing cash management, trade [letters of credit and guarantees] and foreign-exchange services,” it said.

The lender’s expansion in Iraq is part of a larger strategy to grow its international network, which includes branches in the United Kingdom, Egypt, Qatar, Saudi Arabia and Sudan.

In February, the bank reported a fourth-quarter net profit of Dh343.3 million, exceeding analysts’ estimates and rising significantly from Dh242.8m a year earlier. Analysts polled by Bloomberg News had forecast the bank to post a profit of Dh321.3m. The shares jumped 9.3 per cent after the results were released. The first-quarter earnings season is expected to commence next month.

Iraq remains a fragile state and security risks can never be understated. More than 400 people have been killed so far this month and more than 2,000 have died in attacks since the start of the year, according to tallies by Agence France-Presse.

“Security risks always need to be considered, but we believe economic development will help to stabilise the country,” ADIB said.

“In a frontier market such as Iraq, financial institutions need to be particularly alert to a wide range of financial and legal risks. We hope the modernisation of the legal framework will allow for better financing structures and encourage financial institutions to underwrite more risks while protecting themselves.”

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