DUBAI HSBC Holdings (HSBA.L) said on Tuesday it is considering selling its majority stake in Dar Es Salaam Investment Bank BDSI.ISX, which has made it the main international lender in Iraq.
There has been speculation in the Iraqi banking market about the 70.1 percent holding for some time and Simon Cooper, HSBC's chief executive for the Middle East and North Africa, told reporters in April its presence in Iraq was under review.
"Following a strategic review, it was decided to explore options for the disposal of HSBC's shareholding in DES (Dar Es Salaam)" the lender said in a regulatory filing in London, adding it would not participate in a proposed capital increase for DES.
As part of a three-year global restructuring, HSBC has cut retail banking business in some Middle Eastern nations and merged its operations in Oman with a local bank. It has also scaled back its Islamic banking operations.
Selling its DES stake could be complicated by the domination of Iraq's banking sector by two state-owned lenders - Rafidain and Rashid - with the rest divided among a large number of small players.
Iraq's security and political problems have put many global lenders off operating in the country, despite the agreed potential of its emerging banking system.
However, Standard Chartered (STAN.L) has said it hopes to open branches in the country this year and Citigroup Inc (C.N) said on Monday it would open a representative office in Baghdad.
Some Middle Eastern lenders have operations in Iraq, including Abu Dhabi Islamic Bank ADIB.AD and Qatar National Bank QNBK.QA. Lebanon's Bank Audi (AUDI.BY) said it would launch in Iraq in 2013.
DES, which focuses on corporate and consumer banking and has 14 branches in Iraq, has had a partnership with HSBC since October 2005.
Speculation that HSBC might pull out of Iraq had been fed by the absence of its name on a $1.35 billion initial share sale of telecom firm Asiacell TASC.ISX in January, a deal in which it had been due to be a bookrunner.
(Reporting by Brenton Cordeiro in Bangalore; Writing by David French in Dubai; Editing by Ruth Pitchford)