Young depositors blown financial crisis in Iraq!

Young depositors blown financial crisis in Iraq!

08/23/2016 (00:01 pm) 

D.najeh Obeidi

Every now and then beats young depositors alarm to warn of the repercussions of a liquidity crisis gripping some private banks in Iraq. The warning came in the form of demonstrations and sit - ins organized by citizens angry in front of a number of private banks. The reason for their anger to the refusal of these banks and their deposits Exchange in spite of repeated demands for the return of their money. The banks involved acted lacks any legal basis, this anomaly indicates a lack of liquidity of these financial institutions. Although these incidents are still limited, but it can worsen and turn into the so - called phenomenon of the invasion of the banks "bank run" when customers wholesale rushes to pull their money out of banks , which could lead to the collapse of the entire banking system. Hence the protests should be taken seriously depositors by the banks themselves and the Central Bank of Iraq, as well as the government. It is considered a serious indication of the decline in the trust of customers with a number of banks and the banking sector in general. Of course, trust is the first condition for the development of the credit sector in any country, and without them would return customers to the hoarding of money to the old ways are outdated. It is clear that a liquidity crisis among some Iraqi banks are closely linked to the suffocating financial crisis looming over the Iraqi economy as a result of the continuation of the collapse in oil prices since mid - 2014 .sahih that the government has succeeded in getting a good financial doses of International Petroleum Fund and the World Bank and some countries Western that support Iraq in its war against terrorism, but that external support alone is not enough to overcome the structural deficit in the state budget in light of the reluctance of the government is clear in the implementation of radical economic reforms. And reflected the deterioration of the financial situation of the private sector , which also began to suffer from a lot of projects stopped and the delay by the State to pay its financial obligations performance. Under these circumstances , the private sector has become Pedroh unable to service loans and payment of installments eligibility for banks. Thus , the financial system finds itself in front of a vicious circle which can eventually be paid for through the normal loss of deposits of citizens and thus the loss of financial reserves that painstakingly collected in anticipation of a "black day" or to be invested in a useful project. The result will be the reluctance of citizens for savings in the banking sector , which in turn will be unable to perform his job in mobilizing necessary for the development process of financial resources. It seems that the Central Bank of Iraq realize the magnitude of this problem and began to take a lot of procedures. Based on the initiative of the Central Bank of the Council of Ministers approved in mid - July last guarantee bank deposits , a system which provides for the formation of a joint stock company valued at 100 billion dinars , the task of dispelling fears of depositors, especially the younger ones of the prospect of losing their money. With the importance of this step, but it is not enough to solve the problem at its roots, which require many Qanueh and financial and banking procedures from the deposit guarantee not only the responsibility of the bank in question, but also the responsibility of the banks combined and the banking sector, led by the central bank as well as the responsibility of the State.

And begins with the first step to strengthen capital self banks to legally oblige Prusdahtaattiyat enough to face any Mahtelmh crisis. The CBI has been alerted to the problem since the outbreak of the global financial crisis in 2008 and the development of three - phase plan to raise the minimum capital of local banks to 250 billion Danaroa the equivalent of $ 210 million. However, this plan did not find its way to the application in all private banks. At the same time it does not reflect accurately the nominal capital of the bank high for its ability to cope with potential financial shocks, but the important thing is what it actually Ihtaft of the capital to deal with any emergency situation. As for foreign banks, the central bank has issued in late 2014 , a decision is required of foreign banks operating in Iraq to raise the capital of each branch of the 7 million to $ 70 million. However , the differences that have emerged recently, particularly with the Lebanese banks prompted the Central Bank of Iraq to be reduced to $ 50 million. Despite the large increase , but that the minimum capital of branches of foreign banks are still much lower than in neighboring countries. In addition to the conditions of the minimum capital must also instructions required banks to allocate part of its capital and profits to create a financial reserves in anticipation of unexpected developments such as the bankruptcy of the senior or the inability of a large number of customers to pay installments of their loans customers , as happened in the real estate bubble in the US version 2007.

As a result of the conviction humbly financial means local banks the central bank has encouraged small banks to merge in order to raise her credit limit and strengthen its finances. However, these plans have not yielded significant results. It can now apply this idea in the area of guaranteed bank deposits. In many developed countries , many banks resorted to cooperate or to form a joint banking group also includes the rules of mutual interdependence and cooperation to ensure that savers ' deposits at these banks. And this gets any faltering bank to help the group members. However, these rules remain ultimately optional is not enough on its own to prevent the bankruptcy of some banks and the loss of savers ' money.

To avoid such an eventuality resort of many countries to the third step and important a legal guarantee for deposits by passing a law to guarantee deposits in case of bank failure and inability to meet all obligations to its customers. In Germany , for example , the state guarantees the depositor for 100% of its deposits and that does not exceed one hundred thousand euros. Ohz This means that the maximum guarantee applies to each person and each bank. If the person has several accounts in different banks , they are all under warranty separately. This warranty applies to all current and savings accounts and fixed maturities various accounts. And entrusted this task to the Foundation for compensation is a limited liability company affiliated to the Federation of German banks and funded through private banks contributions. To reassure customers, the banks are obliged to inform them of any developments that could lead to the entry of legal guarantee for deposits into force.

However , the big banks , not only the legal guarantee for deposits but offer additional optional guarantees. The aim is to attract more customers and boost their confidence in the banking sector. For this purpose , the German Banking Association established the Deposit Guarantee Fund. The fund was formed through the accession of 160 private banks as members. And it includes the major German banks , major foreign banks and branches. This fund ensures compensate depositors in excess of the legal guarantee of 100 thousand euros and including up to one million euros per person.

The Iraq can benefit from the experience of other countries in the field of deposit guarantee. Until now , the decision can be seen as the establishment of a deposit insurance company, also said the financial advisor to the Prime Minister and former deputy governor of the central bank d. The appearance of Mohammed Saleh, as a "step in the right direction to build a discreet banking system that has the confidence of depositors through the protection of their rights and encourage citizens to deposit in banks." However , the first step needed for other steps, particularly the issuance of legislation to protect the legal rights of depositors and investors, led by small depositors as the largest segment in this category. It is certain that such decisions will also help in spreading awareness of the bank between citizens and convince them to deposit their money in the usefulness of the banking sector, and what is in favor of mobilizing the necessary process of development and financial resources. However , the development of the banking sector also requires the state 's contribution to the protection of the banks of the serious consequences of the financial crisis that hit Iraq. This will only be achieved by applying radical economic reforms and the fight seriously all aspects of waste in public money.