2011年-世界发展银行全球_Iraq_-_Financial_Sector_Review_5页_700kb

MENA Knowledge and Learning: Iraq Financial Sector Review Summary

Core Content

This document provides an overview of the financial sector in Iraq as part of the MENA Knowledge and Learning Quick Notes Series. It highlights the current state of the financial system, challenges, and opportunities for improvement, with a focus on the banking system, capital markets, and related sectors such as insurance and pensions.

Main Points

1. Financial System Overview

• The financial system in Iraq is underdeveloped and underperforming.
• The banking sector is the most significant component, holding over 75% of financial assets.
• The system is predominantly state-owned, with private banks playing a smaller role.
• The financial infrastructure is weak and requires improvement in areas such as credit registry, collateral framework, judicial systems, and accounting and auditing skills.

2. Banking System Analysis

• Seven state banks dominate the sector, with Rafidain Bank and Rasheed Bank being the largest.
• Private banks are generally small, with only seven of 36 having foreign participation and eight operating under Islamic principles.
• State banks account for 86% of bank assets and 69% of credit, while private banks are more liquid and have stronger prudential indicators.
• Profitability is generally good, but private banks saw a decline in 2010.
• Banks are highly liquid, with foreign assets and redeposits at the Central Bank of Iraq (CBI) making up 63% of assets.
• Capital injection of 1.4% of GDP may be required by June 2013 to meet new minimum capital requirements.

3. Challenges in the Banking System

• Accounting and auditing standards are lax, and supervision needs strengthening.
• State banks are inefficient and perform quasi-fiscal operations, which have been delayed in reform.
• Private banks face an uneven playing field, as state entities cannot use their services for deposits or loans.
• Political context affects policy implementation, with security and governance issues remaining a concern.
• Islamic banks have a more capital-based structure and offer more long-term loans.

4. Access to Finance Issues

• Bank credit is low, with only 10% of GDP lent in 2010, far below the MENA average of 55%.
• SMEs have limited access to formal credit, with less than 5% having received a bank loan.
• Micro-finance is a recent focus, but credit demand remains unmet.
• Increasing credit to GDP to 55% would require an additional $400 million in lending.
• Asset quality could deteriorate if credit growth outpaces risk management capabilities.

5. Financial Architecture and Infrastructure

• Weak financial infrastructure hampers access to finance.
• Credit registry, collateral framework, and judicial systems require improvement.
• Accounting and auditing standards should be upgraded to international levels to enhance transparency and trust.
• A chart of accounts and IFRS-compliant standards are needed for consistency and reliability in financial reporting.

6. Payments System

• The payments system is relatively well-developed, with RTGS and electronic netting systems in place.
• A check clearing system is expected to be operational by the end of 2011.
• Cash remains prevalent, indicating a need for further digitalization.

7. Bank Supervision

• Banking laws and regulations are in place but need vigorous enforcement.
• A self-assessment based on the Basel Core Principles is recommended to align with international standards.
• CBI supervision is critical, but requires political will, resources, and compliance with the 2006 MOU.
• CAMELS² ratings need closer monitoring to ensure safety and soundness.
• Islamic banks should be integrated into the CBI's regulatory framework through the adoption of the draft Islamic banking law.

8. Capital Markets

• The Iraq Stock Exchange (ISX) is small and underdeveloped but has potential.
• A privatization program could help increase the size and depth of the stock market.
• Medium/long-term debt securities are in demand but not currently issued.
• Legislative reforms are needed to strengthen laws on contract enforcement, shareholder rights, and corporate governance.

9. Insurance and Pensions Sectors

• The insurance sector is dominated by state-owned companies.
• Public tender processes are mandated, but there is lack of trust in the fairness of these processes.
• Private insurance companies are present but uncertain in number and activity.
• Supervision of the insurance sector is weak and needs strengthening, particularly with the power to conduct on-site inspections.
• The pension sector is undergoing a transition with a new law to merge schemes into a single fund. Supervision requirements must be established now to avoid difficulty later.

Key Information

• State banks dominate the sector and are inefficient.
• Private banks face structural disadvantages and are not yet able to finance large projects.
• Financial infrastructure is a major constraint on access to finance.
• Capital market development requires legal and regulatory improvements.
• Supervision and regulation are critical for the stability and growth of the financial system.
• Legislative reforms are necessary to align with international standards and improve investor confidence.

Contact

• Laura Tuck, Director, Strategy and Operations, MENA Region, The World Bank
• Regional Quick Notes Team: Omer Karasapan, Roby Fields, and Hafed Al-Ghwell
• Tel: (202) 473 8177

Note: The MNA Quick Notes are intended to summarize lessons learned from MNA and other Bank Knowledge and Learning activities. The Notes do not necessarily reflect the views of the World Bank, its Board, or its member countries.