How would you assess the challenges facing the private banking sector in Kurdistan and Iraq?
Our current challenges relate to integration with international banks and institutions. International financial institutions such as the World Bank stress the importance of 'know your customer' (KYC) compliance issues and procedures. We are advantaged in this regard, as the Iraqi business community is small and tight-knit. So, the matter of KYC here is easier than, for example, New York where transactions are more impersonal. Still we must upgrade our standards and requirements to become recognized by the international community. In 2004 and 2005 we were very keen to be recognized by the international community, and worked closely with the CPA to do so. However, results from these initiatives were disappointing. Most countries are still hesitant to partner with Iraqi banks, largely because political risk insurance is difficult to acquire for such partnerships. There are exceptions: the German government is considering asking Euler Hermes, an international political risk insurer, to insure German banks coming to Iraq, and the British government is considering similar actions. While this is encouraging, it means that full international integration for Iraq’s financial sector is still a long way off.

How has North Bank’s strategy evolved since 2004?
Broadly, we have shifted from looking internationally for growth to seeking domestic market share. In 2008, we made this pivot towards focusing on the local market, which is a huge market. North Bank has now been a premier bank in Iraq for several years. To the extent that we can operate internationally, we have very good connections to neighboring countries, including Jordan, Lebanon, Saudi Arabia, the UAE, Bahrain, Kuwait, and Turkey, and we do a lot of business with them. They have significant interests in businesses in Iraq and the Kurdistan Region. We work with their banks, and through them we are linked, to some degree, to the international markets.

Given the size of the economy relative to the size and number of private banks in Iraq, we are not afraid of increased competition: there is room for everyone.

Within the local market, how would you characterize your strategy and operations?
We focus primarily on corporate banking, but we work in retail banking as well. For our corporate clients, we provide letters of guarantee for contractors, bid bonds, loans, lines of credit, bridge loans and other short-term loans, as well as long-term loans. On the retail banking side, North Bank is the largest creditor to the private market. We offer car loans and, to smaller extent, construction loans and mortgages. This is challenging, as there is not currently a mortgage system in Iraq; we make our own individual loans to people for such purposes. The demand in this area is huge and far exceeds our capacity and abilities. This allows us to choose the most eligible clients. In this way, we have no problems regarding default with the loans we extend.

There are many foreign banks entering the market in the Kurdistan Region and Iraq. How do you perceive this increased competition?
We very much welcome these banks. They open doors to international markets for us. Additionally, they typically have a different customer base than North Bank, and tend not to compete directly with us. Most of these banks target services to their home country businesses and citizens that invest here. Moreover, their terms and conditions do not allow them access to the Iraqi markets that we have access to. As such, many businesses and individuals in Iraq and the Region prefer to use local banks such as ourselves. Finally, given the size of the economy relative to the size and number of private banks in Iraq, we are not afraid of increased competition: there is room for everyone. Eventually there will be increased competition in the banking sector as Iraq's economy continues to take off, and the market will become increasingly populated. Even this is welcome, however, as the increasing number of international banks will continue to open doors for North Bank and the Iraqi market in general to broader markets.

North Bank is known for offering very high interest rates on deposits—around 6% APY on fixed deposits in savings accounts. Are these rates sustainable?
There is an old saying that "something is better than nothing," which we employ in our business. Our goal is to grow in market share. Furthermore, interest rates in Iraq should be high; there is a lot of business to be done in rebuilding the country and economy, so there is high demand for financing. We lend at 11%, and we pay our depositors 6%. The 5% gap is more than enough to cover our operational expenses and provide us a profit. And of course, as interest rates drop, so will ours. We used to pay 9% and lend at 17%-18%, but as the country has developed, and will continue to develop, interest rates drop. If you look at our balance sheet, we loan up to 80% of fixed deposits, and the rest we use for small private loans and overdrafts. In this regard, the numbers demonstrate that our interest rates are well calibrated.

One of the major challenges in Kurdistan is a broad lack of trust in banks in general. How is North Bank addressing this challenge?
We inherited this problem, but we are working to improve it. In 1991, after the Kurdish Uprising, money from Iraqi banks in the Region was looted, banks were burned, and the deposits that people had in the banks could not be paid back. This created deep-seated mistrust in banks. Of course, North Bank opened in 2004—long past the initial problems on the early 1990s—and had no role in any of the original problems. However, distrust is largely limited to smaller, individual depositors. Modern banking is now based around services for our corporate clients. The best trust, therefore, is the trust of our private sector commercial clients. Their example will help to garner the trust of smaller depositors who are still distrustful of banks.

What challenges does the Region’s banking sector face in terms of human capital?
To build a bank, you need generations. Training staff so that our teams are qualified to provide quality services is one of our largest challenges. Much of our senior staff is composed of former employees of large, bureaucratic state banks, which means that much of their professional experience has been isolated to the Iraqi financial system under the embargo—they have completely missed out on the technological revolution and other innovations that finance has gone through in the past decades. So, we are investing heavily in training the next generation, and have established our own training center. We have been around for almost 10 years, and we have created a new generation of employees. We predict that in another 10 years we will be able to meet our human capacity challenges. The influx of international banks into the Kurdistan Region makes training of local staff all the more important. However, like many things, development of human capacity takes time.