Positioning for peace: despite security fears, power cuts and border controls, international banks are eager to establish a presence in Iraq.(BANKING)(Industry overview)

It would be easy to assume that Iraq is a completely different environment for banks to operate in, compared with the rest of the Middle East. Yet some reassuringly familiar issues are at work.

The availability and training of a local workforce, and the development of mortgage and insurance markets, are affecting the sector throughout the region. In Iraq, however, the challenges presented by these issues are even more acute because of the additional dangers the unstable security situation presents.

"Security is an ever-present concern, and it does of course affect your ability to go out and look for business," says Chris Murray, director of operations in Iraq for HSBC. "At this point in time, it is not the easiest operating environment."

HSBC acquired a 70 per cent stake in Iraq's Dar Es Salaam bank in October 2005, in a deal that made it the most significant international bank to invest in the country Now, however, other banks are starting to look at the region. They are eager to enter the market in the hope of establishing a presence in the country that will give them an early advantage over any competition arriving after the security situation calms down.

Most of the large international banks operate in the country through a JP Morgan-led consortium that controls the Trade Bank of Iraq. Standard Chartered Bank, National Bank of Kuwait, Credit Agricole's investment banking arm Calyon and a number of other banks are all involved. One of the main reasons for HSBC's involvement in Iraq through Dar Es Salaam is thought to be because it lost out on running the Trade Bank to the JP Morgan consortium, and so sought another entry into the market.

A number of Lebanese banks have also approached the Kurdistan Development Corporation (KDC) about obtaining licences to operate in the country Mia Early, head of investment promotion at the KDC, says the banks feel they can use their experience of post-conflict environments to help them establish operations in the region.

This is particularly appealing because of the change that has been occurring in the Kurdish region during the past few years.