Cablegate: With Citi Deal, Warka Positioned to Lead Iraq's

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1. (SBU) Summary: Citibank and Iraq's Al Warka Bank for
Investment and Finance (Warka) announced establishment of a
correspondent relationship on October 22. This is good news
for Iraq as Warka is leading the way in revitalizing Iraq's
private banking industry. This is also good news for the USG
as it will speed up Embassy payments to service providers in
Iraq. Warka is the largest private bank in Iraq with over
70,000 customers and 105 branches. It is growing at the rate
of roughly five branches per month. While rapidly growing,
Warka is risk adverse and reluctant to make loans to anyone
not well-established in Iraq. End summary.

2. (SBU) Citibank and Iraq's Al Warka Bank for Investment and
Finance announced on October 22 that Warka had established a
correspondent account with Citibank. This correspondent
account will allow Citibank to receive deposits from, make
payments on behalf of, or handle other financial transactions
for Warka. Warka Deputy Managing Director Mohammed Issa said
"As an institution that has served Iraq since 1999, we have
played a significant role in the reconstruction of the
country by participating as a lead financier in many core
sectors including, power, water, communication and

3. (SBU) The GOI has a program whereby letters of credit
under USD 2 million can be underwritten by private sector
banks. The principal impediment to the growth of this
program has been finding Western banks who are willing to
confirm letters of credit (L/C's) written by small private
banks in Iraq. Warka's correspondent relationship with
Citibank will provide a ready partner to confirm their
expanding book of L/C origination. (Note: In addition to its
new relationship with Citibank, Warka had an indirect
correspondent account with Wachovia Bank, and correspondent
accounts with 26 other banks such as Standard Chartered, Bank
Austria Creditanstalt AG, Commerzbank, and Dresdner Bank.
End note.)

4. (SBU) The Citibank-Warka deal has been strongly supported
and encouraged by the Embassy and the Baghdad PRT. The
Baghdad PRT engaged with Citibank to work through several of
the complications and facilitated meetings between Citibank
and Warka. The Baghdad PRT assisted Warka bank in opening
the first, and to date only, private bank branch in the
International Zone. The Taskforce for Business Stability
Operations (TFBSO) assisted Citibank with information on
Iraq's banking environment and a U.S. correspondent
relationship would lead to better execution of Iraqi dinar
payments in support of USG war fighting and economic
development objectives. Post's financial management office
also coordinated efforts to bring this deal to fruition and
is working with Warka to install both ATMs and a branch
office in the New Embassy Compound.

Warka: 70,000 Customers Strong and Growing

5. (SBU) Warka, 60 percent owned by its CEO, Iraqi
businessman Saad Bunnia, is the largest private bank in Iraq
and the fourth largest bank in Iraq in terms of its assets.
With its core banking system and domestic debit card program,
Warka provides a level of banking services new to Iraq. It
is one of the ten banks that the Trade Bank of Iraq
recommends for letters of credit under USD 2 million.
Warka's 45 percent of total loans to total assets represent a
69 percent loan to deposit ratio.

6. (SBU) Warka has more than 70,000 depositors, of which
11,000 are foreign passport holders who have deposited
dollars funds in Iraqi dinar (IQD) accounts in order to
speculate on IQD appreciation and benefit from Iraq's
relatively high interest rate (average 11.9 percent) on
savings account deposits. Customers are able to open a Warka
bank account on the internet. Issa notes that it follows
international standard anti-money laundering and
know-your-customer procedures. It conducts training in

Risk Adverse Lending

7. (SBU) Warka is one of the most aggressive lenders among
Iraq's private banks. As of July 2008, it had 2 percent
returns on assets (ROA) and 26 percent return on equity (ROE)
even while experiencing significant growth. Asset growth
from July 2007 to July 2008 was 131 percent.

8. (SBU) According to Issa, Warka bank is a very cautious
lender, "refusing to take any risks." It makes loans only to

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established customers who are well known businessmen. It
does not make loans based solely on a business plan. In
general, Warka charges 25 percent of the loan off the top;
all loans are for one year or less. This means if a borrower
obtains a one-year USD 100,000 loan, they only receive USD
75,000 from the bank. (Note: This is the way that loans are
made in Iraq and so the real interest rate is much higher
than the nominal interest rate. Warka's exceedingly cautious
approach to lending is shared by other private banks in Iraq
and is one of the major reasons that small and medium
enterprise lending has not yet taken hold. End note.)

9. (SBU) In addition to the interest on loans, Warka
generates substantial income on the fees it charges providing
such services as currency exchange, electronic funds
transfers, letters of credit, Western Union cash transfers,
car loans (especially to government employees who can get a
"letter of guarantee from their ministry"), financial
transactions with GOI ministries, and letters of guarantee.
Warka claims to be the largest private bidder on USD at the
Central Bank of Iraq's foreign currency auctions, averaging
USD 50 million per day. Its largest single-day purchase was
USD 88 million, according to Issa. These foreign exchange
purchases are fore commercial customer transactions abroad.

Aggressively Expanding Branch Network

10. (SBU) Warka is aggressively expanding its branch network.
In 2008, Warka was opening new branches at the rate of about
five per month, according to Issa. When it opened in 1999,
it had two branches. As of the end of October 2008, Warka
has a total of 105 branches open in Iraq. There are branches
in every province. Warka is in the process of opening branch
offices at all forward operating bases (FOBs). The first to
open was at Balad in September 2008. Additionally, Warka
hopes to open branches in Lebanon, Jordan, Egypt and Turkey.

11. (SBU) Warka bank is in the process of installing an ATM
network in Iraq. According to Issa, Warka is willing to
install an ATM at any "secure location" and has a deal to
install 500 ATMs at Ministry of Social Affairs offices
throughout Iraq. Warka Bank intends to install 5,000 point
of sale (POS) machines at businesses throughout Iraq.

Comment: Good News for both Iraq and the USG

12. (SBU) The establishment of a correspondent relationship
between a private Iraqi bank and a U.S. bank is a significant
milestone in the restoration of the Iraqi banking system.
Warka is playing a key role in the revitalization of Iraq's
private sector and is on track to be Iraq's most
widely-branched bank in Iraq. This new development comes at
a time when we are pressing the Central bank of Iraq and the
Ministry of Finance to move GOI trade business and letters of
credit in excess of USD 4 million to private banks such as
Warka. (Note: This limit is currently at USD 2 million. End
note.) The Citi-Warka correspondent relationship adds
important impetus to our efforts. Furthermore, the
establishment of a correspondent account between Citibank and
Warka is a positive development as it will allow the Embassy
to accelerate its bill payments via electronic funds
transfer. In the past it took an average of five days for a
payment of USG funds that originated at the Embassy to reach
a Warka branch office for withdrawal. A correspondent
account with Citibank should reduce this processing time to
two days. End comment.


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