Fransabank joins a growing number of Lebanese banks in the Kurdistan Region, where there are more banks from Lebanon than any other foreign country.
Early in this month, a branch has been opened by Fransabank in Erbil of Iraq, following in the footsteps of Byblos Bank Credit Libanais, which in 2007 became the first Lebanese bank in autonomous Iraqi Kurdistan. It was followed by BBAC, BankMed, Bank Credit Libanais and IBL Bank.
It has been reported that the largest bank in Lebanon, Bank Audi, is coming to town, and BLOM Bank plans to open a branch this July.
Standard Chartered is currently the only Western bank with a branch in Erbil. Most foreign banks buy shares in Iraqi banks rather than directly entering the market. But Lebanese banks are famous for entering countries rated below investment grade. Years of civil war and turbulence have taught Lebanese bankers how to navigate low security and higher risk environments.
Khalil Keidan, head of Fransabank’s Iraq operations, says Lebanese banks are drawn to the bigger returns for investing in high risk but possibly unstable countries. According to him, however, Iraqi Kurdistan is a sure thing.
“Iraq isn’t rated by the major agencies like Standard and Poor’s,” he explains. “The Economist Intelligent Unit gives it a C rating (below investment grade), but does not distinguish between the peaceful Kurdistan Region and the rest of the country.”
Fransabank has been providing services for other banks in Iraq since before 2000, and has been extending letters of credit (LCs) to local businesses since 2003. Keidan believes this experience, combined with a booming economy and relative security in the northern enclave, are ingredients for success.
Yet they, like many other banks here, only offer a limited range of financial services. Like their predecessors Byblos, the majority of Fransabank’s loans are for commercial ventures. They are currently feeling out the market before expanding into retail finance, meaning personal loans. In six to seven months they expect to introduce credit and debit cards for Kurdish consumers.
Private banking sector is a growing industry in Iraq at present, despite of security challenges within the country. Fransabank’s Erbil and Baghdad branches have just $7 million apiece in capital, compared to $1.5 billion in Beirut. Public banks dwarf their private counterparts, and capital ratios -- the ratio of core assets to risk-weighted assets -- still average over 50 percent, meaning banks give few loans relative to their cash holdings.
New arrivals like Fransabank plan to introduce a more aggressive approach, lowering capital ratios by pumping more money into the economy with a variety of loans. They will not award these loans, however, without the information necessary to analyze risk. For companies seeking financing -- small or large -- this means the ability to provide visibility studies, cash flows and proper balance sheets. Right now, many clients come to banks without these documents prepared.
Keidan said that things are changing in Iraq at a high speed and he further noted, “Now, if companies can’t do the analysis in-house, they go to international firms like Deloitte & Touche or Ernst & Young, who have set up offices in Erbil. Businesses are becoming more professional -- moving beyond the pure concept.”