New requirements of the Central Bank of Iraq (CBI) for the proportion of foreign currency deposits allowed against guarantees and letters of credit (L/Cs) is one of several reasons behind the withdrawal of Lebanese banks from Iraq according to assistant general manager for external expansion at Lebanon's Bank of Beirut and Arab Countries (BBAC), Chawki Badr.

In an interview with the Lebanese daily newspaper An-Nahar, he says Lebanon's banks have an established presence in Iraq, with deposits exceeding US$1.3 billion at the end of 2019, and are active market participants in foreign trade finance operations, including opening L/Cs, issuing external guarantees and making transfers.

New instructions

But in a CBI circular issued in November 2019, new instructions emerged regarding the balances of Iraqi banks including foreign banks abroad according to Badr.

He said the CBI would only allow foreign currency deposits outside Iraq to be made equivalent to 30 per cent of a bank's total deposits or 20 per cent of its capital, whichever of those two percentages is the higher.

L/C requirements

Banks were also required to maintain 70 per cent of deposits or 80 per cent of the value of external guarantees and confirmed L/Cs inside Iraq Badr said.

The CBI subsequently amended those percentages to apply to 50 per cent of the value of external guarantees and L/Cs, confirmed and unconfirmed he concluded.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.