The world's largest banking groups are busy forging alliances in the competition to convince US administrators in Baghdad that they should have the first bite of the cherry in Iraq's potentially enourmous market for trade finance.

The first prize, expected to go to an international consortium of banks, will be the award of the job of managing the recently announced Iraq Trade Bank (DCWorld News 10 July 2003).

August decision

US administrators want to decide by August on the mix of international banks will handle letters of credit (L/Cs) for oil and other industries in Iraq that could total billions of dollars each month, according to a 22 July 2003 report in The Wall Street Journal (WSJ).

Banks included in the consortium could gain a crucial foothold in the country, as Iraqi concerns start making big-ticket purchases abroad.

Market economy

Initial business volumes however are expected to be modest, at around US$100 million a month, according to US estimates, but once Iraq's giant oil industry revives, business volumes will begin to boom.

US officials hope the Trade Bank will help set a framework for a trade finance environment in which commercial banks will eventually be able to issue L/Cs on their own. In the meantime the consortium that wins the right to manage trade finance provision in occupied Iraq will have to operate in a period of transition at the end of which Washington hopes Iraq will become a market economy.

Interested banks

Banks reportedly interested in Iraqi business include J P Morgan Chase. It has joined forces with Britain's Standard Chartered, the National Bank of Kuwait, the Australia and New Zealand Banking Group and Poland's Millennium Bank BIGW.WA , according to the WSJ. It reports that Citigroup is also interested, as is Deutsche Bank although it will probably have to tie up with a large US bank to win a slice of business in Iraq according to the newspaper.

In London, Standard Chartered declined to comment on the WSJ report but said it was looking for opportunities in Iraq. "We are well placed to support the reconstruction of Iraq. We've got more than 50 years experience operating in the region and we're currently providing assistance on donor and aide funding to the country," according to a spokesman who said the bank has appointed a Dubai-based executive to oversee its interest in Iraq.

Middle East connections

US officials are apparently expecting about half a dozen bids to manage the Trade Bank. The WSJ was not however able to say which of the bids looked to be the favourites in the race to win the first slice of L/C business in post-Saddam Iraq once the legacy system put up by the UN and operated by BNP Paribas in New York is fully dismantled over the next few months.

US Treasury Department officials did however indicate to the WSJ that the winning bid would be a consortium of banks from two or more countries while other officials have said that banks with strong operations in the Middle East will most likely be at an advantage.

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