Great risks and economic isolation await the Iraqi banking sector, after the rating of the Trade Bank of Iraq (TBI) was downgraded by Fitch International, and while experts attributed this “harmful” reduction to government borrowing, in addition to the advances that were granted to the Kurdistan region through the bank, Without returning those short-term advances and loans, which led to a decline in its rating, stressing the difficulty of returning its rating to its normal status.
Economist Mustafa Akram Hantoush said, during an interview with “Al Aalem Al Jadeed,” that “Fitch Credit Rating Agency is a credit agency that was established in the year 1913 by its founder, John Fitch, the well-known statistician in America.”
Hantoush adds, “The agency works to grant a degree of credit to banks around the world, so Iraqi banks seek to earn a degree in agencies lower than Fitch, such as Standard & Poor’s and others, but Fitch is considered the best because the degrees it grants enable you directly to enter the Accounts of major banks such as JP Morgan and Citibank Group.”
Fitch had lowered the Iraqi Trade Bank’s long-term credit rating (IDR) to CCC+ from B- and the Government Support Rating (GSR) to ccc+, after it had been B-. The international agency also lowered TBI Bank’s capacity rating. On hold (VR) to ccc+ from B- and later withdrawn rating.
The economic expert explains, saying, “As a result, the Iraqi Trade Bank was established during the era of Paul Bremer (the American governor) in 2004, according to American standards, and it has a rating that has ranged between B+ and B- over the past 20 years, and this may be the first time that the bank has declined to C and CCC+ level.”
Hantoush attributes the reason for the decrease in government support for the bank to “the government taking loans and advances from it according to Fitch’s rating, with the difficulty of paying those amounts by the government, due to its large budget first, and secondly, the financing of the Kurdistan region with two trillion and 100 billion dinars in the form of advances to the Central Bank of Kurdistan, and this The debts are almost non-existent and are covered by the government in the 2024 budget.”
He continues, “The lack of investments in this bank, in addition to some other weak standards in it, all of this led to the reduction of the credit rating to a bad degree, and the successive weak management of this bank was also a reason, and here we stand before the only Iraqi bank that wants total government transfers and credits, with JP Morgan and Citibank, and therefore if anything happens and the bank’s classification is re-evaluated, this means a major problem, as we will need an intermediary bank for the Iraqi Trade Bank and the two aforementioned banks to carry out financial transfers, and this leads to its financial and economic isolation from the world.”
The downgrade of VR’s rating reflects the weakness of the business profile and financial metrics of the Trade Bank of Iraq, and also includes concerns about the bank’s management and governance structure, the timing of financial reporting and audits, and financial pressures in particular arising from additional allocation needs and litigation costs.
It is noteworthy that the Trade Bank of Iraq announced in 2018 that Fitch Agency confirmed the credit rating of the Trade Bank of Iraq at B- with a stable future outlook, making it the first Iraqi bank to obtain an official credit rating from an international rating agency.
In addition, financial expert Hammam Al-Shamaa explained, during an interview with Al Aalem Al Jadeed, that “changing the credit rating at Fitch agency indicates the weakness of the capabilities of the bank whose rating was changed, in terms of fulfilling its obligations, and this is what happened with the Trade Bank of Iraq.”
Al-Shamaa adds, “The bank has large loans, and these loans, considering the current situation, are not repayable. Therefore, the bank has weak confidence, and its receivables are not sufficient to meet the obligations it owes, especially since the bank has advanced most of its money to the government, which means that the debts it owes are very large”.
He points out that “the nature of the situation that the bank is going through does not affect its work, but the bank is not trusted by foreign investors, so it cannot deal with foreign banks with complete confidence, but internally it is not affected.”
Al-Shamaa states, “The bank was established after 2003 as a bank for foreign trade, and despite the presence of the Rafidain and Al-Rashid banks, they have internal obligations such as financing salaries and others, and they do not have dealings with abroad, so the government dealt with the Iraqi Trade Bank and began to borrow from it significantly, and therefore if The Iraqi government has not changed its policy of internal borrowing from Iraqi banks, as it is very difficult for the bank to return to its previous credit status.”
The Trade Bank of Iraq was established in 2004, and it is considered the first bank in the country. It accounts for about 80 percent of trade financing business in Iraq. It ranks first among Arab banks in terms of cost-to-income ratio and 332nd globally in terms of first-class capital, and it has 25 branches throughout Iraq.
For his part, economic expert Qusay Safwan pointed out, during an interview with Al Aalem Al Jadeed, that “Sandlan Agency was commissioned by the Central Bank of Iraq for years to classify the course of the Iraqi Chamber and relies on a mechanism to monitor credit movement and loan repayment and the possibility of the Iraqi Bank having international correspondents.”
He notes that “the demand for the process of expanding the circle of cooperation and providing services to customers was rated negatively for the Iraqi Trade Bank, and this is due to the inability to provide international banks that have dealings with most of the world’s banks, such as Citibank and JP Morgan, and certainly the shortcomings and weaknesses that are identified by Fitch Ratings will contribute to re-accelerating the issue of improving banking services provided to customers.”
He stresses that “expanding the circle of international cooperation and opening banks with branches abroad in order to truly be a gateway to guaranteeing Iraqi trade and financing it from various sources.”
Safwan concludes, “If this classification is substandard, it will lead to higher costs of dealing with this bank, which does not have international loans or seeks to obtain international loans, and most of its dealings are with the Iraqi government sector. Therefore, this classification will not It affects the government sector’s confidence in the Trade Bank of Iraq, but in the long run, if the bank wants financing from external sources, it will be at a high cost.”