Iraq: Country's Largest Bank Up for Sale?

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Iraq's largest bank, state-owned Al-Rafideen, plans to lay off a third of its staff and overhaul a debt-laden balance sheet to prepare for privatization, possibly next year, the bank's chairman said on Monday.

Al-Rafideen had a virtual monopoly of the government's banking business before U.S.-led forces toppled Saddam Hussein's regime in April last year.

The bank still accounts for 75 percent of Iraq's deposit base but is saddled with about one sixth of the country's $120 billion foreign debt.

"We have started to move toward becoming a for-profit bank after providing free services to the state for years. We have enormous expenses," Al-Rafideen's chairman Daya al-Khayoun told Reuters in an interview.

Khayoun hopes the government will approve an early retirement scheme to help reduce its 7,300-strong work force.

"I expect around a third of our employees to retire if a favorable retirement law is passed," said Khayoun.

The management is looking to use computers to link Al-Rafideen's 170 branches -- a novelty in a country where the banking system has been deteriorating since a socialist party took power in the 1950s.

Public confidence in Iraq's banks plummeted when Baath Party rule began in 1968 and most Iraqis preferred to keep their cash in Jordanian or Lebanese banks, or even under their beds.

Founded by the Chalabi merchant family in 1942, Al-Rafideen was nationalized in the 1960s and was soon the government's bank of choice.

It was the only bank to have substantial deposits of foreign currency, stashed away by the Baathist regime, but state patronage proved to be a poisoned chalice.

Making Progress

The former Iraqi government opened letters of credit that were never settled, bankers say. Over $20 billion of Iraq's debt was accumulated through Al-Rafideen and is technically classified as the bank's liability.

"These were owed by the Iraqi state. It should not be regarded as debts of Al-Rafideen," said Khayoun, who rose through the ranks after joining the bank in 1960.

Bankers say the management is making progress toward cleaning up the balance sheet, especially after Al-Rafideen took over deposits belonging to the former Iraqi government under a restructuring plan.

"Basically our financial position grew stronger after taking over the former government's accounts," Khayoun said.

Al-Rafideen has deposits of 1.2 trillion dinars ($800 million) and around $700 million in foreign currency, he said.

Iraq's U.S.-installed government has decided not to sell off state assets until 2005, when a new constitution is due to be in place. But privatization looks likely because U.S. and Iraqi officials running the economy are not keen to keep large enterprises in state hands.

"There is nothing certain about privatization yet and I have not been told of the bank's fate," said Khayoun.

Eager to open up Iraq's banking sector, the central bank is in the process of granting licenses to six foreign banks. Some 17 private banks also operate in Iraq but Al-Rafideen and another state bank control around 90 percent of the country's banking assets between them.

AMP Section Name:War & Disaster Profiteering
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