ࡱ> 130 bjbj,, .$NNkkkkk <:Zkkkkkkk0̼2M'5 0<66k 1:   Michael Hodges speech Good morning. As Lady Nicholson has said I am Michael Hodges and I am Business Development Director, Middle East, Africa and South Asia, Global Banking and Markets at HSBC Bank plc in London. I have been asked to say a few words today about our investment in Iraqi Kurdistan. HSBC traces its origins in Iraq back to 1915 when the Imperial Bank of Persia (eventually to become the British Bank of the Middle East and then HSBC Bank Middle East) opened branches in Basra and Baghdad. These were nationalised in 1964 along with all other private banks. In 1992 Saddam allowed the setting up of new private banks and some 18 of these were in existence when the Baathist regime fell in 2003; amongst these from 1999 was Dar Es Salaam Investment Bank. After 2003 the Central Bank of Iraq granted licences to certain international banks including HSBC. HSBC was then approached by the Al Khudairy family, the controllers of Dar Es Salaam Investment Bank, as a potential investor. After various discussions in November 2005 HSBC purchased a 70.1% stake in Dar Es Salaam Investment Bank. The other shares are owned by the Al Khudairy and the Al Muhaidib families (22%) and through the Baghdad Stock Exchange, on which 7% of the shares are quoted. When we purchased the bank it had some 200 staff and a dozen branches, seven in Baghdad and the others in Mosul, Azziziyah, Karbala, Diwaniya and Samawa. We now have approximately 520 staff and 16 branches including two in Kurdistan, of which more later. Our staff in Iraq are all Iraqi nationals although the Chief Executive Officer is my colleague James Hogan; he now spends more than 50% of his time in Iraq. Dar Es Salaam Investment Bank is the only bank operating in Iraq which is owned and managed by a global bank. It is able to provide a full and complete range of banking and financial services with a special emphasis on international connections. It has a bias towards wholesale corporate banking although it also performs certain retail banking functions. It has some 19,000 customers in all. Dar Es Salaam is now able to send funds electronically throughout the country and abroad. HSBC through its Amman branch is happy to confirm letters of credit issued by Dar Es Salaam. Banking assets in Iraq total some US$ 55 billion of which some 90% are controlled by state-owned institutions. Among private sector banks Dar Es Salaam is in the top four with capital of US$ 57.2 million. This contrasts with its three main private sector rivals as follows: Bank of Baghdad (US$ 59.8 million), Credit Bank of Iraq (the same) and Warka Investment Bank (US$ 43.6 million). Dar Es Salaams market capitalisation however is currently US$ 320 million, which indicates a certain optimism on the Baghdad Stock Exchange about our prospects and deems Dar Es Salaam potentially the most profitable bank in the country. The bank made profits of some US$ 8.5 million in 2009, a return on equity of 15%. Iraq currently has 36 banks, which is almost certainly too many. The Central Bank of Iraq intends to increase the capital requirement for a bank to ID 250 billion - say US$220 million - by 2013/14 and this should reduce the number of banks to 15 or 20. Turning now specifically to Kurdistan. Dar Es Salaam had no branches there at all in 2003. It now has two - Erbil, opened in 2006 and Dohuk, opened this year. Some 10% of Dar Es Salaams deposits and lending currently come from Iraqi Kurdistan. We are looking at opening a branch in Sulimaniye later this year, and possibly also in Zarko on the Turkish border. It is likely that the groups first branch branded HSBC in Iraq will be in Kurdistan, and that within the next year or so. HSBC sees Kurdistan as having the benefit of political stability and security, and sound economic policies. Investment in Kurdistan has been about US$ 12 billion over the last three years, helped in part by Kurdistans favourable investment laws for foreign companies. In 2009 Iraqi Kurdistan imported goods worth c US$ 10 billion, some 20% of which were Turkish in origin; HSBC of course is a major investor in Turkey and has a bank there with some 150 branches. Under the Iraqi constitution, Kurdistan receives 17% of the total Iraqi central government budget; this amounted to some US$ 10 billion in 2009 and some 60% of this was allocated towards infrastructure. There are some 21 banks currently operating in Kurdistan, of which three are Lebanese. The future of banking in Iraq and in Kurdistan is bright and we are looking to increase our profits in the country one hundred-fold over 15 to 20 years. That said regulation currently lacks clarity with the Central Bank and the Ministry of Finance both involved. Rules for state-owned banks are different from those for the private sector. There is a lack of trust in the banking system and a high dependency on cash. US Dollar deposits total roughly 50% , and these can be difficult to place. The Iraqi Payment System is improving but has a long way to go. There is a lack of financial and business data. Collateral is difficult to take. There is a lack of spoken English. However these issues will be resolved. An interbank market will develop, as will syndicated lending. I think on this note I will draw to a close. Thank you for listening to me. I will be happy to attempt to answer questions at the end. $\ , _ ~  ! 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