Iraq's banking sector eyes growth as violence falls

By Mohammed Abbas

BAGHDAD (Reuters) - Iraq's banking sector is showing signs of growth as violence has dropped to a four-year low, with lending, deposits and electronic transfers up sharply in recent months, U.S. embassy statistics show.

The volume of loans issued by private banks in February jumped by almost half to $755 million compared with October, and the value of letters of credit outstanding in March more than doubled to $189 million versus October.

"The improved security situation has made business, trade and activities possible that weren't possible before," Charles Ries, a senior U.S. official at the embassy who is tasked with helping Iraq revamp its economy told Reuters.

The embassy's statistics included data collated from a range of Iraqi sources. The central bank and Iraq's finance ministry have not responded to requests for data and bank officials, including at private banks, were not available to comment.

The figures are tiny by international banking standards, but are significant for a country trying to rebuild its financial sector and boost investment after years of war and sanctions.

Ries has helped some Iraqi banks adopt the SWIFT system of international electronic bank transfers, a crucial step for integration into the global banking system.

About half of the 41 banks licensed to operate in Iraq now have SWIFT, the embassy said. Some of these banks are foreign.

Many large transactions in Iraq are still conducted in cash, and businessmen and contractors often fly into Baghdad laden with bricks of dollar bills.

The U.S. military, a major spender in Iraq, now insists any transaction of over $50,000 be made electronically.

In the Iraq central bank's daily auction for dollars, the amount traded in cash has remained stable for almost two years, but there has been a steady increase in transfers.

"That's evidence of a more normal, more internationally orientated banking system," Ries said in a recent interview.

BUDGET EXECUTION

Swelled by record oil prices, Iraq's cabinet recently proposed raising the 2008 budget to $70 billion -- up from $41 billion last year.

Budget execution is crucial to reviving Iraq's economy, and the departure of many experienced technocrats since the fall of former Iraqi President Saddam Hussein five years ago has made the effective expenditure of state cash difficult.

Iraq's parliamentary economic committee said some 55 percent of last year's budget set aside for investment was spent, with initial indicators showing it could rise to 70 percent in 2008.