Banking activity in Kurdistan has slowed down since the beginning of 2014 due to a delay in adopting Iraq's federal budget, Adham Karim Darwesh, general manager of the Erbil branch of the Central Bank of Iraq , told Zawya in an interview.
"The delay in adopting the federal budget this year caused a 25% reduction in banking activities, as there was a three-month lag during which the market did not receive large sums of money, including wages of public servants in the governorate, which affected market transactions," he said.
The adoption of the 2014 federal budget, which is around IQD 174.649 trillion (USD 150 billion), has been delayed mainly over differences between Baghdad and the semi-autonomous Kurdistan Regional Government over oil exports. The Kurdistan government has protested the federal government's move to reduce the region's share of budget revenues to less than 11%.
Darwesh said the governorate's finance ministry was in talks with representatives of Rasheed Bank and Rafidain Bank about opening new branches in Kurdistan.
"There has been a delay in implementing the plans, perhaps from the side of the banks or perhaps due to the security situation and the political instability in Iraq."
Bank transfers from Kurdistan abroad were USD 10 million to 15 million per day, with most transactions happening with Jordan, Turkey, UAE and Lebanon, he said.
Darwesh criticized some banks operating in Kurdistan for focusing mostly on profits and limiting their activities to buying US dollars at central bank auctions.
"This has led the central bank in Kurdistan to play a bigger role to support important sectors. The government wants to establish a banking society grouping a number of banks and which has adequate capital to provide support for investment in important sectors, such as health, by providing soft loans," he said.
Darwesh said the Central Bank of Iraq also plans to establish a unified system linking banks together, including those in Erbil and Sulaymaniyah, to facilitate banking activities in all Iraqi regions and prevent money laundering and corruption within the banking sector.
"There are many problems facing the banking sector, including the lack of new technologies in banking transactions and services, as well as the lack of qualified personnel who are up-to-date with the changing industry innovations and technologies," said Darwesh.
He said that Islamic banking had not yet developed fully in Iraq. He said the three Islamic banks in Erbil were not operating according to shariah law and were still using commercial banking standards to calculate profit and interest.
Iraq has seven state banks, 23 private banks, nine operational Islamic banks and 16 foreign banks, in addition to five financial institutions, according to a statement from the CBI.
The central bank has recently threatened to revoke the licenses of five commercial banks that cannot or are not interested in increasing their capital in Iraq.