As the UN's oil-for-food programme for Iraq enters its rather bumpy final descent into history, the Trade Bank of Iraq (TBI) appears to be nearly - but not quite - ready to issue its first letter of credit (L/C).

Elsewhere in Iraq's re-emerging banking sector, foreign banks are courting local banks with a view to obtaining one of the half dozen licenses for joint Iraqi-overseas banking ventures.

Replacement

The Iraqi oil funded TBI will act as an intermediary financial organisation to speed Iraq's reintegration with international trade financing by providing L/C facilitiesfor Iraqi ministries and agencies to purchase goods overseas (DCWorld News 02 September 2003).

The bank, operated by a J P Morgan-led consortium of international banks is seen as a key component in the financial structures required as replacements for the seven-year old UN oil-for-food programme that on 21 November 2003 ended officially.

Delays

It seems however as if several problems have delayed both the final wind-down of the oil-for-food programme and TBI's establishment. It had been intended that the TBI would have been up and running when the UN programme came to end.

Reasons for the delay in TBI's commencement are unclear but we believe that last month some members of the consortium felt unable to sign up formally to full participation in the new bank. The oil-for-food programme is publishing a closing account of the status of L/C transactions in the pipeline

Local banks

Iraqi banks have not been recognised internationally since the UN imposed sanctions on Iraq for its invasion of Kuwait in 1990. Jordan and to a lesser degree Lebanon served as Iraq's unofficial bankers during the sanctions.

Once it is open, the TBI will play an important role because it will be internationally recognised. Iraqi banks are outside the global settlement mechanism and private banks are not able to provide trade finance at present. Having been cut off from the world for 13 years it will take time for banks and their staff to catch up in terms of training and technologies.

Joint ventures

As part of the reconstruction of the local banking sector, however, announcements are expected in the next few weeks on deals to be signed between Iraq's 17 private banks and foreign banks. Foreign banks can own up to 50 per cent of an Iraqi bank under new commercial banking laws approved by the Iraqi Governing Council.

Proposals from foreign banks to obtain two of six licenses to operate in Iraq are expected in December 2003 and the decision to grant the licenses will be apparently be left to the Iraqis rather than to the Coalition Provisional Authority or US officials.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.