By Stefania Bianchi - Jun 27, 2013 1:52 AM ET
Citigroup Inc. ©, the U.S. lender scaling back in some emerging markets, said it’s seeking to benefit from an estimated $1 trillion of infrastructure spending in Iraq as the country rebuilds roads and bridges after the war.
The third-largest U.S. lender by assets this week received approval to open a representative office in Baghdad and will also consider more such offices and branches in the country, Mayank Malik, chief executive officer for Jordan, Iraq, Syria and the Palestinian territories, said in a phone interview.
Iraq is the New York-based bank’s first country opening for six years. Photographer: Scott Eells/Bloomberg
Citigroup Inc. Chief Executive Officer Michael Corbat. Photographer: Simon Dawson/Bloomberg
Iraq is the New York-based bank’s first country opening for six years and comes as Chief Executive Officer Michael Corbat seeks to sell or scale back consumer operations in nations such as Turkey, Pakistan and Uruguay, reversing an expansion strategy into faster-growing economies by former CEO Vikram Pandit.
“Iraq is a giant that’s waking up and the opportunities are immense,” Malik said from Amman, Jordan. “The most significant opportunities are two fold -- oil revenue generation and infrastructure creation. We estimate this to be $1 trillion initiative over time.”
Iraq, holder of the world’s fifth-largest proven oil deposits, is boosting budget spending by 18 percent this year to $118 billion. The International Monetary Fund forecasts the economy will grow 9 percent this year, the fastest pace after Libya of 18 countries in the Middle East and North Africa.
Business in Iraq will come from international companies looking to rebuild roads, telecoms, electricity and water infrastructure amid ongoing violence in the country, Malik said.
“The economic story of Iraq hasn’t changed,” he said. “Iraq is the only country that has economic stability and political instability.”
Foreign banks were barred from the country until after the U.S.-led invasion that ousted the regime of Saddam Hussein. Today, 15 international banks operate there, competing with seven state banks, 23 private lenders and nine banks operating under Islamic rules, according to the central bank’s website.
Banks in the country are set for growth in earnings and assets as a surge in lending in OPEC’s second-biggest producer outpaces the region. Iraq’s rising oil exports and a drop in the prime lending rate to 6 percent from 17 percent in 2008 are feeding the expansion.
The five largest privately owned banks boosted their combined net income by 207 percent from 2010 to 2012 and more than doubled earnings per share, according to Singapore-based Sansar Capital Management LLC, which runs a fund with $30 million invested in Iraqi equities. The country has one ATM for every 100,000 residents, compared with a regional average that’s 32 times higher, according to Sansar’s report.
Standard Chartered Plc has said it will open branches this year in Baghdad and the city of Erbil, followed by a third office next year in the oil hub of Basra.
Iraq has seen an upsurge in violence since the U.S. withdrew its last combat troops at the end of 2011, reflecting tensions between Sunni Muslims and the country’s Shiite-led government. Terrorists killed more than 1,000 civilians and security forces in the country in May, surpassing the 712 killed in April, which was the deadliest month since June 2008, the United Nations mission to Iraq said in June.
“The political backdrop may cause some delay or distraction, but the economic fundamentals of Iraq haven’t changed,” Malik said.
Corbat, who replaced Pandit in October, announced last year that the lender would sell or scale back consumer operations in five nations including Turkey and Pakistan as part of a cost-cutting plan that will eliminate 11,000 jobs. In March, Corbat told attendees at a New York conference he might exit businesses in 21 more countries, which he didn’t identify.