After calls for depositing money in banks, why do Iraqis not trust their banking system?

Over the past decades, the Iraqis refrained from keeping their money or depositing it in banks for many reasons, which made the majority of the cash liquidity in Iraqi currency outside banks, whether governmental or civil, which caused a financial crisis over the past months.

Iraq witnessed a large cash liquidity crisis following the decline in global oil prices due to the Coronavirus pandemic, which led to difficulties faced by the Iraqi government in providing Iraqi cash to meet its requirements such as public employee salaries and operating expenses.

With the failure to approve the general financial budget for the current year 2020, the government turned towards external and internal borrowing from banks after Parliament enacted a law allowing them to borrow for a limited period, but the banks themselves were mainly suffering from a lack of liquidity in the local currency, and thus the Central Bank of Iraq called on citizens to deposit their money in Banks rather keep them in homes and businesses.

Hama Rashid believes that Iraqis do not trust the infrastructure of banking systems (Al-Jazeera)

Absence of legislation

Many officials and experts in Iraq attribute the Iraqi citizen's lack of confidence in the banking system to many reasons, the most prominent of which is the lack of credibility in the infrastructure of banking systems of all kinds on the part of the Iraqis, even though Iraq has 86 governmental and private banks, according to Ahmed Hamma Rashid, a member of the Parliamentary Finance Committee.

Hama Rashid adds that this means that these banks could not participate in building the economic infrastructure due to the poor banking system and the failure of these banks to fulfill their obligations towards the Iraqis, and that Iraq still lacks legal legislation guaranteeing deposits in banks despite the submission of a draft of this law since Previous parliamentary session (2014-2018).

And about the size of the monetary block in Iraqi dinars, Hama Rashid reveals to Al Jazeera Net that Iraq has a printed cash block issued by the Central Bank estimated at 80 trillion Iraqi dinars, with a circulation volume ranging between 38 to 40 trillion dinars, but less than half of the last number is found in banks Government and civil society, and the rest is stored with merchants and families in their homes, which led to the government facing a crisis in borrowing from banks due to Iraq’s reliance so far on the circulation of paper currency without relying on electronic trading and credit cards.

Al-Shamaa said that Iraqi banks have not kept pace with the great progress in the world (Al-Jazeera)

Inherited problems

And in this direction goes the economist Hammam Al-Shamaa, who confirms to Al-Jazeera Net that the problems that the Iraqi banking system suffers from are old and inherited from decades ago, as banks have not kept pace with the great progress in the world, and have not yet turned towards electronic banking, so that the Iraqi citizen can hardly find Automated teller machine on the street.

Consequently, cash withdrawals in the country are always through bank branches and during official working hours only, and this is a big problem that Iraqis face if depositing their money in banks.

Al-Shamaa added that the successive political crises in the country, the nationalization of banks in the past decades, and the seizure of depositors 'money, all these measures have lost the Iraqis' confidence in banks, which led to the storage of money in homes, and therefore the funds deposited in banks do not exceed 15% of the size of the Iraqi monetary mass .

System obsolescence

17 years have passed since the opening up of Iraq to the global economy, but all Iraqis still deal in paper currency without electronic dealings through credit cards.

And a professor of economics at the Iraqi University, Abd al-Rahman al-Mashhadani, points out that the Iraqis ’hoarding of their money is close to 77% of the total cash mass in the country, with the absence of automatic teller machines and point of sale (BOS) machines.

Al-Mashhadani believes that the banking system does not have the ability to attract depositors and preserve their money, as well as to deal well with them, which has led since the 1990s to all governments resorting to stopping depositor withdrawals in a period of crisis.

In his speech to Al-Jazeera Net, Al-Mashhadani reveals that the anti-money laundering and terrorism law has been applied with great unfairness to the Iraqis, as opening any bank account requires filling out complex forms and questions about the source of the funds, as well as asking the bank to the depositor to bring a guarantor in a step he described as (unreasonable) .

Regarding the reason for the absence of prominent foreign banks in the country, he points out that the Central Bank stipulated that foreign banks should have a capital of 50 million dollars and that their goal be to enter the field of development, but some of them exploited their presence in the smuggling of money, in addition to allowing them to enter the auction Foreign currency (buying dollars directly from the central bank) shifted its work from development and lending to looking for profits after the central bank allowed it to buy 5 million dollars a day at an exchange rate (1190 dinars to the dollar), which is 40 dinars less for every dollar sold on the black market.

This proposal is confirmed by a member of the Parliamentary Legal Committee, Rashid Al-Azzawi, in his speech to Al-Jazeera Net, who believes that Iraqi banks suffer from old problems, the most important of which is that banks in Iraq require all depositors to fill out a form known as (from where did you get this?), And thus the depositor enters into a set of procedures. The red tape and bureaucracy that makes him think a thousand times before depositing his money in banks, and this is what affected the status of the monetary mass available in banks and even the decline in investment in the country.

Al-Mashhadani considers that the Central Bank of Iraq does not guarantee the rights of depositors (Al-Jazeera)

US sanctions

The problems faced by the banking system in Iraq are many, as during the Islamic State’s control over the governorates of Nineveh, Salah al-Din and Anbar, these governorates witnessed the closure of all banks in them, and consequently the inability of depositors to withdraw their money.

Al-Mashhadani points out that the central bank in all countries of the world is a guarantor, given that all banks open after obtaining fundamentalist approvals.

As a result, Al-Mashhadani confirms that at least 16 Iraqi banks were closed as a result of what happened, including the Warka Bank, the Middle East, Mosul, the North, and others, and therefore depositors were unable to withdraw their money, as a result of the lack of a real guarantee by the Central Bank.

Journalist Jamal Al-Badrani comments in his interview with Al-Jazeera Net: “The Iraqi citizen lost his confidence in the banking system in three stages, which are the period that followed the 1991 Gulf War, then the US invasion of the country in 2003, and finally in 2014 when the Islamic State took control of large areas of Iraq. ".

Al-Badrani confirms that the people of Mosul have suffered greatly in withdrawing their money that had been deposited in banks before 2014, and its withdrawal now requires security approvals and permits, as well as returning them in installments to depositors.

On the other hand, the US administration imposed in previous months sanctions on some Iraqi banks because of their financial dealings with Iran, which led to the central bank putting its hand on them while freezing their accounts.

This is what Ahmad Hama Rashid indicates in the fact that most of the private banks in Iraq are owned by personalities, political parties and influential people, and therefore they are subjected every day to quarantine by the Central Bank, and with the absence of a law guaranteeing deposits, depositors may lose their money at any moment.