RURAL IRAQI BANK SLUMBERS ON

C O N F I D E N T I A L SECTION 01 OF 02 HILLAH 000118

SIPDIS

SIPDIS

E.O. 12958: DECL: 7/16/2016
TAGS: ECON EAGR ETRD EINZ IZ
SUBJECT: RURAL IRAQI BANK SLUMBERS ON


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CLASSIFIED BY: Alfred Fonteneau, Regional Coordinator, REO Al
Hillah, US Department of State.
REASON: 1.4 (b),(d)




1. (C) SUMMARY: In rural Qadisiyah Province, even bank
personnel have only a hazy idea of what commercial banking might
be. REO staff met with Mr. Salih Mehdi, director of the
Diwaniyah branch of the Rafadeen Bank, a financial institution
belonging to the Ministry of Finance. Mehdi made the following
points: 1) provincial branches have absolutely no autonomy.
All decisions, including small loans, are made in Baghdad; 2)
Bank loans are essentially limited to borrowing on real estate
due to high collateral requirements; and 3) medium and long-term
lending do not exist. Consequently, Mehdi stated, his bank
exists primarily as a payroll service for the Iraqi Army. As of
now, he noted, financial services and commercial credit have yet
to arrive in Qadisiyah. As if to underscore Mehdi's points, the
only other bank in Diwaniyah, an agricultural cooperative, will
shortly close its doors. END SUMMARY


2. (C) Salih Mehdi, the President of the Qadisiyah branch of
the Rafadeen Bank, seems like a man used to waiting. He was
growing accustomed to waiting for Baghdad to give him and his
staff the authority to make loan decisions. He was waiting for
the long-gone Coalition Provisional Authority (CPA) to make good
on its promise to provide training for six of his staff. Mehdi
said he was waiting for the home office to return two vehicles
given to him by CPA staff that had been whisked off to Baghdad
by his superiors. Most of all, he was waiting for the
opportunity to begin real banking in the provinces.


3. (C) The Qadisiyah branch had some autonomy decades ago,
Mehdi explained. However, in the Saddam Hussein era, loans were
only available to regime loyalists, the type of men who rare, if
ever, repaid a loan. Consequently, post-Saddam, the central
office had issued instructions that all loan applications, no
matter how small, had to be approved in Baghdad. Despite this,
Mehdi complained, communication was one-way. He rarely heard
back from the main office and had no idea what innovations might
be on the way.


4. (C) According to Mehdi, the Qadisiyah office had 53 staff
with additional personnel in three branch offices. Total
payroll was over one hundred. He contrasted his workforce with
his miniscule deposits; just 5.5 billion Dinars or around 4.5
million USD with an additional 400,000 USD in "micro-finance"
funds from a NGO. He noted that he had no ability to do
wireless transfers; for example, in accepting remittances from
overseas Iraqi workers. In fact, he added, his bank had no
Internet access and no e-mail.


5. (C) Mehdi stated that loans were less than a fifth of
deposits, creating balance sheet problems as he could not cover
interest payments. Most loans were for terms of two to five
years with interest rates from 14% to 16% depending on whether
the borrower had an account with deposits at the bank.
Collateral was primarily property and loans could be made up to
half the market value of a house.


6. (C) "We spend most of our day making salary payments for the
Army," Mehdi explained. He said that there was little formal
economic activity, and if there was, he had no ability to
evaluate loan applications and lend to entrepreneurs. He noted
that the micro-finance loans had been quite popular given low
interest, minimal paper documentation requirements, and the
utility of the loans for farmers buying agricultural inputs.
However, he added, the program had limited funds.


7. (C) Mehdi said he saw retailing reviving with over 30% more
shop fronts open in the city this year. However, he said, most
of these stall owners and small retailers were operating from
money kept under the bed and brought out when the security
situation seemed to be improving. He wondered whether many of
those shops would close down again given that the number of
shops on the street was directly dependent on how secure people
felt in Diwaniyah. Currently, he noted, the bulk of provincial
economic activity occurred in the government, and, he sadly
noted, the Provincial Council seemed hostile to his bank.


8. (SBU) COMMENT: The lack of business sophistication in
Diwaniyah is striking, given the hustle and bustle of next door
neighborhood, Najaf. The commercial sleepiness in Qadisiyah is
probably attributable to the province's tense and unstable
security situation. Few in Diwaniyah believe that Iraqi
Security Forces can reliably keep the city calm. The resulting
negative impact on business is tangible. To underscore the lack
of activity, the other financial institution in Diwaniyah, an
agricultural cooperative, will shortly close its doors. The
decision reportedly came from Baghdad after the home office had
discovered that the Diwaniyah branch had not actually booked any

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loans so far this year. END COMMENT
FONTENEAU