The Trade Bank of Iraq, will next month start for the first time setting up letters of credit (L/Cs) to help finance the country's oil exports.

This will mark a departure for the bank that has so far issued L/Cs only in respect of state imports for goods such as medicine, power equipment and imports related to reconstruction.

Easier for Iraq

President of TBI, Hussein Al-Uzri, said the move to allow L/Cs to be used for oil trading would make it easier for Iraq's oil industry to sell its produce and for Iraq to receive the proceeds from oil sales.

He told delegates at a recent Iraq investment conference in Beirut that the bank is advising Iraq's State Oil Marketing Organization about how buyers of its crude can pay for purchases.

Export guarantees

Since starting operations in December 2003, the TBI has issued L/Cs worth more than US$700 million, compared with a total of US$200 million on 20 January according to Uzri.

He announced last month announced in Kuwait City, that the bank had raised US$2.4 billion in export guarantees for trade between Iraq and foreign companies and governments.

Management contract

J P Morgan Chase and 12 other foreign banks manage the TBI under a management contract worth US$2 million over two-and-a-half years.

The consortium of 13 banks representing 14 countries was awarded the contract last July after a competitive bidding process against four other international consortia.

Competition

Competition to provide banking services in Iraq is apparently increasing. One of the TBI consortium, Standard Chartered, says it is looking to set up bricks and mortar operations in Iraq and is examining the prospects of a branch licence in Iraq. Standard Chartered was the first foreign bank in Afghanistan after the fall of the Taliban regime in that country.

Citigroup together with the US government agency, Overseas Private Investment Corporation (OPIC) also have plans for a US$200 million finance house to support imports to Iraq. Citigroup would contribute $50 million and OPIC $150 million to the scheme designed to bolster the Iraqi banking system.

An announcement is expected soon that another bank with shareholders from Iraq and Bahrain will be established, with its headquarters in Bahrain. A formal announcement in this respect is expected from Dr Zohair M. Al Sarraj, chairman of the Iraq-Arab Alliance Conference on Reconstruction, Trade and Investment.

The views in this article are those of the author and not necessarily those of ICC or the other partners in DC-PRO.