The US-led coalition governing Iraq has named a consortium led by JP Morgan Chase to operate the Trade Bank of Iraq.
The consortium will be responsible for developing and operating the Trade Bank of Iraq to facilitate trade flow funding. Initially funded by resources from the Development Fund for Iraq , the Trade Bank of Iraq will offer letter of credit opening services as well as export negotiation. Additional services will be brought on line as deemed appropriate by local authorities.
The Trade Bank was created in July by the Coalition Provisional Authority (CPA), which is governing Iraq after the removal of Saddam Hussein by US, UK , Australian, Polish and other forces earlier this year. Peter McPherson, director of economic development for the provisional authority, announced the selection of JP Morgan’s group over five competitors to operate business he estimated in the hundreds of millions annually.
The Trade Bank will not be handling oil revenues, although US Treasury officials say they will clarify the role of oil revenues in the bank’s finances soon.
The trade bank will make it possible for Iraqi agencies and oil concerns to buy big-ticket items from other countries using letters of credit.
The bank’s start-up capital will come from US$5mn from the provisional authority and up to US$95mn from a UN reconstruction fund made up primarily of oil revenues.
The US government has been preparing to support exports to Iraq . The US Export-Import Bank (US Exim) just approved a US$500mn loan insurance programme to support sales of US agricultural goods, equipment and other products to Iraq, a day after President George W Bush lifted restrictions on Ex-Im operations in the country.
Iraq ‘s trade bank is expected to be in business guaranteeing trade credits by the end of September, McPherson claims.
“This is a critically important assignment, and we look forward to putting in place the necessary arrangement as soon as possible,” says JP Morgan Chase spokesman Joseph Evangelisti.
The Trade Bank is scheduled to be in operation for 12 months, with the option to remain open for another two years. The US hopes private commercial banks will eventually take over the business of providing LCs for trade.
Consortium members also include ANZ, Standard Chartered Bank, National Bank of Kuwait; Bank Millennium of Poland, Bank of Tokyo-Mitsubishi, San Paolo IMI, Royal Bank of Canada, Credit Lyonnais, Caja De Ahorros y Pensiones de Barcelona, Standard Bank, Akbank, and Banco Commercial Portuges.
David Edwards, regional general manager for Standard Chartered Bank’s operations in the Middle East and South Asia, says: “Standard Chartered is delighted to be able to lend our expertise in support of Iraq’s rebuilding efforts. Leading the way in Asia , Africa and the Middle East , the bank has a strong commitment to this region and is uniquely placed to help the Iraqi economy and people through development of the banking system.
“We are excited to be able to play a role in the reconstruction process. With our consortium partners, we look forward to coordinating with the relevant authorities and getting started as soon as possible.”
A fundamental commitment from the consortium is to train local staff in international standards of banking operations to expedite the growth of the local banking system.