The growing crisis in Iraq has forced western banks that launched themselves into the Iraqi market with gusto in recent years to tighten controls on clients’ funds and pull senior staff out of the country amid growing security concerns.
Standard Chartered, which opened branches in Baghdad and Erbil in 2013, has moved the head of its Iraqi business and another British colleague to Dubai, from where they continue to oversee operations.
The head of Citigroup’s representative office in Baghdad has moved to Amman in neighbouring Jordan. The US bank has also advised its multinational corporate clients to reduce the amount of cash they keep in Iraq to a minimum.
Citigroup’s Iraqi operation is run by Dennis Flannery, a former financial attaché at the US embassy in Baghdad. When the US bank opened its office in Iraq last year, it said the move would allow it to benefit from an estimated $1tn of infrastructure spending in the country.
Financiers said banks continue to operate in Mosul and other places where Isis has taken control, adding that foreign lenders continue to service their big multinational corporate clients in Iraq. “It is business as usual,” said one.
But Isis fighters stole about $450m of cash and gold from Mosul’s central bank and other lenders in the northern Iraqi city last month and bankers said they were preparing for the situation to get worse.
“We want to be prepared for any breakdown of the country’s banking system,” said one banker.
StanChart has the biggest presence of any Western bank in Iraq. Nouri al-Maliki, prime minister of Iraq, inaugurated its first branch in Baghdad last November and it opened a second in Erbil a month later.
The UK-listed emerging markets lender had planned to open a third branch in Basra by last month, but that has been put on hold. It employs 21 people in the country, focused on large companies in oil, telecoms and infrastructure.
The local staff in StanChart’s Baghdad branch, situated in the city’s banking district on a street lined with blast walls and patrolled by armed guards, have been working from home recently for security reasons.
Gavin Wishart, head of StanChart’s operation in Iraq, is still flying to the country from Dubai regularly. He said at a conference last year: “We see Iraq as a challenge, but something we can deal with,” adding that security measures “mitigated risk to a level that is acceptable” but were “time consuming and naturally expensive”.
While Iraq has in recent years attracted a series of new investments from foreign banks others were already withdrawing before the most recent crisis.
HSBC has cut its ties with Dar Es Salaam Investment Bank by suspending its correspondent banking relationship with the Iraqi lender in which it owns a 70 per cent stake.
Last year, HSBC announced plans to sell the stake in Dar Es Salaam Investment Bank, but a person familiar with the situation said the sale had been delayed by a technical hitch in transferring the Baghdad-listed shares. HSBC declined to comment.
Additional reporting by Andy Sharman