BAGHDAD (AP) — Citigroup (NYSE: C ) is set to become the first American bank to open an office of its own in Baghdad, highlighting financial firms' growing interest in Iraq a decade after the U.S.-led 2003 invasion.
Executives say the representative office that Citi has received preliminary approval for will help support its corporate customers in Iraq and act as a liaison for companies looking to do business there.
British bank Standard Chartered is also making a push in Iraq with plans to open branches in three cities.
"Essentially what we are doing is following our clients," said Mayank Malik, Citi's chief executive for Jordan and Iraq, ahead of an official announcement Monday. "We see this as a giant waking up. ... The time to enter is now. It's not when everything has been done."
Iraq has struggled to attract interest from Western companies outside of the oil sector in the 10 years since U.S.-led forces toppled dictator Saddam Hussein. Security and political instability remain major concerns, and corruption within the top-heavy statist economy is deeply entrenched.
Even so, foreign banks see opportunities as Iraq's economy opens up on the back of an oil boom.
The World Bank expects Iraq's economy to grow by 9 percent this year, compared with just over 2 percent for the global economy as a whole. Last year Iraq became the second-largest oil producer in OPEC, and now churns out more than 3 million barrels of crude a day.
Iraq's financial system is dominated by state-owned banks, though lenders from nearby countries including Iran and Lebanon have opened branches since the war. Abu Dhabi Islamic Bank, one of the largest banks in the oil-rich United Arab Emirates, opened its first outpost in Baghdad last year.
Iraq is slowly showing signs of economic development, with new hotels, restaurants and car dealerships popping up. But it remains a challenging place to do business.
More than 2,000 people have been killed in bombings and other violent attacks since the start of April in the worst outburst of violence in five years. And the country is politically volatile. Iraq's long-serving central bank governor was abruptly removed from his post in October following a probe into alleged financial wrongdoing.
Citi's Iraq country head, Dennis Flannery, who was previously the U.S. Treasury Department's representative at the U.S. Embassy in Baghdad, described Iraq's unpredictability and instability as "part of the landscape" of the country.
"The economic engine is still humming along. We haven't seen any reason to alter our strategy," he said.
At a cafe inside Baghdad's heavily fortified Green Zone, Citi's Malik and Flannery described the new office as the start of a broader relationship with Iraq that could lead to bank branches down the road. The office itself will start out small and will be located outside the confines of the Green Zone, a sprawling complex of government buildings and embassies sealed off from the rest of the city by blast walls and heavily armed soldiers backed by tanks.
"There'll be next steps," Flannery said. "It's important to collect information, to learn better what the market is all about, to learn the good parts, the bad parts, everything. ... And that will enable us to take that next step to full-scale banking in a better informed way."
The bank says the Baghdad outpost may be followed by additional representative offices in the southern oil hub of Basra and the Kurdish regional capital Irbil in the north of the country.
Citi already counts as clients many of the large international oil companies that have been brought in to develop Iraq's vast oil reserves, he said.
The bank is also advising Kuwaiti telecommunications provider Zain as it gets ready to list shares of its Iraqi operations on the Iraq Stock Exchange. Another Iraqi telecom, Asiacell, raised nearly $1.3 billion when it floated shares on the small stock exchange in February. It was one of the Middle East's biggest stock offerings in years.
Britain's Standard Chartered, meanwhile, is working on plans to open bank branches in Baghdad, Basra and Irbil. Its reasons are similar to Citi's.
"We need to be on the ground to support our global network clients in industries such as power, oil, telecoms and construction," spokesman Piers Townsend said.
Saleh Mahoud Salman, the director of administration at the Central Bank of Iraq, was unable to say when the companies' operating licenses would be issued. He welcomed the banks' interest in Iraq, saying they could help "develop the economy and push the banking sector forward."
Even as Citi and Standard Chartered push into Iraq under their own brands, British banking giant HSBC is considering an exit of its 70 percent stake in Iraq's Dar es Salaam Investment Bank as part of a wider review of its global operations.