Foreign banks have been looking very carefully at the two emerging markets for commercial banking that have arisen out of Washington's war on terror.

Emerging market specialists, strong international banks and prestigious regional banks from the Arab world and Gulf region and development institutions are all showing an interest in Iraq and Afghanistan, and the most pioneering have already made firm commitments to set up shop in very difficult conditions.

Iraq

The Central Bank of Iraq (CBI) recently announced it has awarded Britain's HSBC and Standard Chartered and the National Bank of Kuwait (NBK) the first licenses given to foreign banks for 40 years.

The three banks were selected from 15 applicants "to proceed to the final stage of the foreign bank licensing process" and should begin operations by the end of 2004 according to the CBI, which says it might select other banks at a later stage.

Knowledge transfer

When they open for business, the aim is for the selected banks to bring modern banking practices, capital and know how to the Iraqi economy.

They will also participate in the re-education of local bankers who have become unused to commercial banking since Iraq's banking sector was nationalised in 1964, four years before the former ruling Baath party swept to power.

L/C practice

The three banks have yet to detail the range of services they will offer but Standard Chartered Bank, is already gaining corporate experience in letter of credit (L/C) practice in Iraq through its membership of the consortium led by J P Morgan that is operating the Iraq Trade Bank (ITB) which opened late last year.

Standard Chartered is also learning the ropes in Afghanistan where it opened earlier this year the first western bank to set up in the post-Taliban era. The banks are the first allowed into the country since before the Russian invasion of 1979, after which all financial institutions were nationalised. The bank's branch in Kabul will offer deposit-taking, money transfers and trade services.

Afghan licenses

The Afghan government has licensed three foreign banks and the state-run National Bank of Pakistan, which was the first of the new crop of financiers to open a branch when it launched business from a villa in Kabul in October last year.

The Aga Khan Fund's is majority shareholder in First MicroFinance Bank, which expects to open a branch in Afghanistan later this year. Other shareholders in the bank that aims to stimulate micro-business trade and development, may include the International Finance Corporation, the Kreditanstalt für Wiederaufbau and the German Development Bank while support might also come from the US Agency for International Development and the European Commission.

In and out

The Afghanistan International Bank (AIB), a local bank with international shareholders and ING management, and Pakistan's Habib Bank are also set to open according to Afghanistan's central bank governor, Anwar-ul-Haq Ahady.

Of the existing six banks in the country, the Pashtuni Tejaraty Bank and the Milli-e Bank (National Bank) will be restructured. The remaining four - the Agricultural Bank, Industrial Bank, Mortgage Bank and Export Promotion Bank - will be merged or liquidated, Ahady said.

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