Cablegate: Banking in Fallujah

DE RUEHGB #2107/01 1891455
R 071455Z JUL 08



E.O. 12958: N/A

This report is sensitive but unclassified (SBU) and not for
dissemination outside of official channels or via the

1. (U) This is a joint EPRT Fallujah/Embassy Baghdad
reporting cable.

2. (SBU) Summary: As life in Fallujah has returned to a
semblance of normalcy, its banking sector -- both private and
public -- has rapidly developed to meet a growing economy's
demand for financial services. Three state-owned banks,
Rafidain, Rasheed, and the Agricultural Bank, and the two
privately-owned Bank of Baghdad and Al Warkaa Bank are open
for business. The Al Warkaa Bank has undergone rapid growth
in Fallujah since opening its first branch there in October
2007; it plans to have a total of six branches open in the
Fallujah District by the end of 2008. Since its USD 800,000
recapitalization in June 2008, the Agricultural Bank has
recommenced offering low-interest loans to farmers and local
businessmen. Greater access to credit and financial services
are enhancing Fallujah's economic development. End summary.

Banks in Fallujah

3. (SBU) Six banks have offices in the Fallujah District.
Two are private - Al Warkaa and Bank of Baghdad. Three are
wholly owned by the Government of Iraq: Rafidain, Rasheed and
the Agricultural Bank. The sixth bank, which exists in name
only in an abandoned office, is the quasi state-owned Iraqi
Islamic Bank. (Note: Prior to regime change, the Iraqi
Islamic Bank was 50 percent owned by the Baath party; this
ownership has shifted to the Ministry of Finance. End note.)

--------------------------------------------- ---------
Ag Bank: Almost Free Money for Farmers (And Officials)
--------------------------------------------- ---------

4. (U) The Agricultural Bank opened its first Fallujah branch
in 2001. It temporarily closed after 2003 and reopened its
doors in September 2007. According to its management, the
Agricultural Bank plans to open offices in Karmah,
Amiriyah-Ferris and Saqlawiyah.

5. (SBU) The Agricultural Bank's stated goal is to act as a
policy bank subsidizing the agricultural sector. To this
end, the Fallujah branch has cut its interest rates from 14
percent to two percent on many of its financial products
intended to assist the agricultural economy. The two percent
annual charge serves as an administration fee. (Note: With
inflation running at 15.8 percent in April 2008, the
Agricultural Bank's terms represent essentially free money.
End note.) Farmers are arriving at the bank before it opens
for financial assistance, according to bank management. The
money to finance these loans arrived at the bank
approximately 30 days ago and they have received many
applications loans. However, the Agriculture Bank has yet to
issue any of these loans, though they expect to begin this
process in the near future.

6. (SBU) In June, the bank received a capital infusion of IQD
1 billion (USD 800,000) from the Ministry of Finance. Prior
to this recapitalization, it had lent IQD 225 million (USD
188,000) to roughly 135 farmers and 15 businessmen and IQD 50
million (USD 42,000) to approximately 50 government
employees. During the four years of conflict from 2003 to
2007, delinquency rates peaked at 40 percent in early 2007
for farmers/businessmen. Over the past couple of months,
late payments have declined to an estimated 25 percent based
on discussions in June 2008 with Agricultural Bank senior
management. Government employees continue to pay off loans
in a timely manner.

7. (SBU) A committee of three people reviews loan
applications for agricultural or business projects, and
conducts a site visit if required. The committee usually
includes a member from the Agricultural Bank, the Ministry of
Agriculture and a surveyor. The branch manager has approval
authority up to IQD 3 million (USD 2,400). Bank financing is
collateralized with real estate and the bank will lend up to
80 percent of the project's value. Bank officials say that
60 percent of its loans, by value, support the summer and
winter planting seasons.

- Winter and summer crops are financed at two percent per
annum for amounts up to IQD 3 million (USD 2,500) for a
period of six to twelve months.

- Livestock and poultry, including supporting-infrastructure,

BAGHDAD 00002107 002 OF 002

are financed at two percent per annum for a period up to four

- Fruit orchards, including supporting-infrastructure, are
financed at two percent per annum for a period up to five

- Fish farms, and supporting-infrastructure, are financed at
two percent per annum for up to two years.

8. (SBU) The Agriculture Bank also offers 2 percent loans up
to USD 17,000 for 25 calves; up to USD 47,000 for 500 sheep;
up to USD 12,500 for chicken farms; up to USD 8,400 for
refrigerated green houses; and up to USD 4,200 on other green

Fallujah's Al Warkaa Bank: Making Its Move

9. (SBU) Prior to October 2007, there were no Al Warkaa
branches in Fallujah District. It now has a total of five
branches there; four out five of these branches have opened
since the beginning of May 2008. There are two branches in
Fallujah city and one branch each in Karmah, Amiriyah-Ferris
and Saqlawiyah. A third branch in Fallujah is scheduled to
open in the next couple of months. (EPRT Note: Al Warkaa's
branches compare extremely favorably to the USD 300,000
expenditure made by the USG, in the immediate post-kinetic
phase, to refurbish a similar building to house the
state-owned Rasheed Bank. End note.)

10. (SBU) The EPRT has worked closely with Al Warkaa in
opening these branches, providing advice and facilitation on
non-financial matters. Al Warkaa has been responsive to the
EPRT's request to open branches in the small towns around
Fallujah as well as expanding its presence in Fallujah city.
According to Branch Manager Mohammed Faz'a Farhan, Al Warkaa
Bank opened branches in the small towns of Karmah,
Amiriyah-Ferris and Saqlawiyah "due to the security ring zone
around Fallujah which has limited economic activities in the

11. (SBU) According to bank officials, a substantial portion
of Al Warkaa's revenue stream is driven by electronic funds
transfer (EFT) through letters of guarantee (domestic) and
credit (foreign). This activity is historically the most
important bank activity in Iraq since it supports the
efficient allocation of capital to support commerce
throughout the country, they said.

Embassy Comment:

12. (SBU) Cheap credit from government banks and new
financial services from private banks will help resuscitate
Anbar's economy. This good news will become better news when
conditions allow the private banks to expand beyond
transaction services and mobilize resources for investment.
The GOI appears to be moving forward on providing finance to
jump-start Anbar's post-kinetic economy. Now the GOI needs
to push the structural reforms that let the private sector
take the lead.


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