Iraq hires EY to explore restructuring of state banks

Murtadha Al-Sudani/Anadolu Agency via Reuters Connect

• Ernst & Young restructuring plan
• Study of Rafidain and Rasheed
• Account for 85% of market

Iraq is considering merging its two largest state banks as part of a restructuring plan prompted by a sharp erosion of their assets over recent years because of accumulating non-performing loans, local media has reported.

London-based auditing firm Ernst & Young (EY) is conducting a study on the restructuring of the Rafidain and Rasheed banks at the request of Mohammed Al Sudani, the prime minister, who said last week restructuring would begin in a few months.

“The two banks account for nearly 85 percent of the local market… but they are now facing many problems inherited from past regimes … This requires a comprehensive reform plan that will put them back on track,” said Mudhar Saleh, Al Sudani’s financial adviser.

“The restructuring study being carried out focuses on the evaluation of the assets and other aspects of its financial resources,” he said.

“It will emphasise that restructuring is intended to bolster their integration into the local market and allow them to push into global markets, especially in the fields of funding trade and investment by the private sector,” Saleh told Iraq’s Al-Forat news agency at the weekend.

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Saleh did not provide further details but the news report quoted an Iraqi analyst as saying the plan includes the merger of the two banks.

Salah Nouri, from the Iraqi Institute for Economic Reforms, said the main reason for restructuring the two banks is the accumulation of bad loans extended before the US-led 2003 invasion of Iraq.

“I believe that the restructuring plan calls for the creation of two parallel banks, one for Rafidain and one for Rasheed, to which the bad assets will be transferred… Afterwards, there will a merger of Rafidain and Rasheed with the healthy assets and of the two parallel banks with the bad assets,” he said.

Rafidain Bank was established in 1941 and became a state-owned bank in the 1960s during a wave of nationalisation by the ruling Ba’ath Party. In 1988, Rafidain’s non-performing assets were carved out into Rasheed Bank.

According to the Beirut-based Union of Arab Banks, before the first Gulf war, Rafidain was once one of the region’s largest banks, with assets of nearly $47 billion.

The Bank was badly damaged by the first Gulf war and the Western economic sanctions against Iraq. These sanctions were behind the closure of Rafidain’s London branch in 1990. 

In a report on Monday, the Baghdad Al-Youm news website said Iraq’s cabinet has approved the creation of a new bank to be called “Rafidain First Bank” with a capital of one trillion dinars ($763 million), adding that 24 percent would be owned by the government.

“Rafidain will continue to work as a platform for the implementation of government transactions while the plan to restructure it along with Rasheed Bank will still be enforced through a roadmap with the help of Ernst&Youn,” it said.

In April 2024, Aliqtisad News and other local publications reported that the Iraqi Central Bank sent a letter to Rafidain telling it to prepare for a merger with Rasheed Bank.

“Restructuring of these two banks is a crucial step to improve the financial situation of Iraq and strengthen its position in the global financial system,” said Jamal Kojar, a member of parliament’s financial committee. “This decision is also extremely important because these banks have not been audited for years and there is a need to correct the mistakes that might exist in the current financial system.”