REQUEST FOR APPLICATIONS
BANKS MAJORITY OWNED BY FOREIGN PERSONS
FOR
FOREIGN BANKING LICENSE IN IRAQ
Iraq Banking Law, Section 2 - Licensing, Article 4, Licenses and Permits, Paragraph 6 provides “The total number of licenses for banks majority-owned by foreign persons is limited to six banks through December 31, 2008, unless the Central Bank by regulation increases the number. Thereafter, there is no limit to the number.”
Through this Request for Applications (RFA), the Central Bank of Iraq (CBI) will initiate the process of selecting a limited number of foreign banks to be granted a banking license. Questions and requests for clarification can be submitted until November 15, 2003, by e-mail to: RFAmailbox@central-bank-iraq.org. An electronic copy of your proposal must be received at this same e-mail address no later than 5:00 PM Baghdad time on November 26, 2003. Also no later than 5:00 PM Baghdad time on November 26, 2003, ten (10) hard copies of your proposal must be date and time stamped by DHL as having been received by DHL for delivery to the Baghdad address specified herein.
Dr. Sinan Shabibi
Governor of the Central Bank of Iraq
This is a Central Bank of Iraq Request for Applications.
Overview:
This Request for Applications (RFA) is part of a wide-ranging program by the Central Bank of Iraq (CBI), supported by the Coalition Provisional Authority (CPA), to strengthen Iraq’s economy by: (i) accelerating the modernization of the banking sector; (ii) building a new foundation for the banking system that is based on sound market principles; (iii) fully implementing measures among Iraq’s banks that are consistent with international best practices in all aspects of commercial bank operations; (iv) expanding banking products and services to the Iraqi population; and, (v) accelerating Iraq’s integration into the international financial community.
The current commercial banking system has suffered from years of restrictive regulation and lack of support for modern banking techniques and technology under the Saddam regime. The CBI is inviting interested foreign banks to participate in the reconstruction of Iraq by establishing a presence in Iraq.
Under the Iraq Banking Law,[1] the CBI has the authority to grant licenses to banks that are majority-owned by foreign persons (hereinafter “Foreign Banks”). For purposes of this RFA, the term license[2] refers to the authorization granted by the CBI to a bank to conduct banking activities[3] in Iraq. The total number of licenses that may be granted to Foreign Banks is limited to six through December 31, 2008. Initiated through this RFA, the CBI intends to grant a minimum of two Foreign Bank licenses. A Foreign Bank that desires to be granted one of these initial licenses may enter Iraq by: (1) Acquiring more than 50% of an existing Iraqi bank; (2) Establishing a ‘Green Field’ or de novo subsidiary; or, (3) Establishing a branch of the Foreign Bank within Iraq.
For its Iraq operations, Foreign Banks interested in being granted a license must have a minimum capital of Iraqi Dinar 50 billion (approximately US $25 million)[4] and otherwise comply with requirements contained in the Iraq Banking Law.
The CBI is using a two-stage process to grant Foreign Bank licenses. This process was designed to enable the CBI to establish quickly which Foreign Banks are committed to Iraq, without overly burdening all Foreign Banks responding to this RFA with the need to furnish the documentation necessary to obtain a license.
Stage 1 consists of: (i) determining, through the responses to this RFA, which Foreign Banks are the most committed and able to assist Iraq in meeting the goals set forth in the first paragraph of this section; and (ii) performing a preliminary due diligence review of those Foreign Banks. The CBI Governor, through the process described in the next paragraph, will decide which Foreign Banks are selected to advance to Stage 2. The total number of Foreign Banks selected to advance to Stage 2 will be the maximum number of licenses that will be granted at this time.
For purposes of recommending the Foreign Banks that should advance from Stage 1 to Stage 2, the CBI Governor will establish a Selection Committee (Committee), comprised of a Chairman and knowledgeable individuals experienced in banking. The Committee will evaluate the RFA responses submitted by Foreign Banks (see “Selection Criteria” section). Before making its recommendation and at its discretion, the Committee may request that applicants make oral presentations before the Committee. The Committee will recommend to the CBI Governor the Foreign Banks that should be selected to advance to Stage 2.
After the CBI Governor selects the Foreign Banks to advance to Stage 2, the CBI will request that certain information be provided (see Appendix A) so that the CBI can perform the appropriate additional due diligence on the selected Foreign Banks pursuant to the Licensing section of the Iraq Banking Law. The Foreign Banks selected to proceed to Stage 2 will then be granted a license if, after the CBI evaluates the information provided, the CBI determines that the selected Foreign Banks meet the conditions provided in the Iraq Banking Law and other criteria the CBI may deem necessary to ensure the suitability of the Foreign Bank.
The CBI Governor anticipates that licenses will be granted to successful applicants as soon as practicable after selection of the Foreign Banks to proceed to Stage 2. A Foreign Bank is expected to comply with the commitments made in its response to this RFA in order to be granted the license. Material deviation could result in revocation of the license.
Foreign Banks that do not respond to this RFA, or that respond but are not selected to proceed to Stage 2, remain eligible to apply for any remaining Foreign Bank licenses at a later date, or to acquire a minority interest in an Iraqi bank.
Proposal Information and Evaluation
The CBI seeks written responses to this Request for Applications (RFA) from Foreign Banks. Responses must be in English and Arabic.[5] The written response is limited to 25 pages, excluding Appendices. While there is no explicit page limit for Appendices, the CBI requests that they be as short as reasonably possible. Information submitted in the Appendices that is already prepared in English need not be translated (e.g., annual report).
The deadline for responses to this RFA is 5:00 PM Baghdad time on November 26, 2003 (21 days from issuance of the RFA). By this time and date, an electronic copy of responses must be received at: RFAmailbox@central-bank-iraq.org. Also no later than 5:00 PM Baghdad time on November 26, 2003, ten (10) hard copies of all responses must be date and time stamped by DHL as having been received by DHL for delivery to the following Baghdad address:
Central Bank of Iraq
c/o Coalition Provisional Authority
Central Bank Team
Main Palace, Room S205
Baghdad, Iraq
The CBI does not yet have a functioning web site. Accordingly, at the request of the CBI, the complete RFA will be posted on the CPA website (www.coalitioniraq.org). In addition, notice of the RFA will be provided in the international business press. Applications should be in the format set forth in the “Format for Written Application” section of this RFA. Inquiries about this RFA, or requests for clarification of the language contained in the RFA, must be made by e-mail to RFAmailbox@central-bank-iraq.org. The CBI requires that once the RFA is made public, all questions regarding the RFA be made in written form to the e-mail address noted in the prior sentence. Contact with CBI officials or the Selection Committee members, once chosen, other than through the e-mail site above, during the submission period may disqualify the applicant from being granted a license under this RFA. The question period will end 10 days after the public issuance of the RFA. All questions and answers regarding the RFA deemed of general interest will be posted 14 days after the issuance of the RFA on the CPA website. While the question will be posted to the website, the identity of the entity or individual asking the question will not be revealed.
Each submission will be evaluated by the Selection Committee (Committee). The Committee will evaluate each proposal and, at its discretion, may select a group of institutions that will be given the opportunity to make an oral presentation before the Committee. This presentation is likely to take place outside of Iraq at the earliest practicable opportunity. Selected Foreign Banks will make their oral presentations before the Selection Committee. These presentations will be no more than one and a half hours in length, with 30 additional minutes for a question and answer period. After receiving the recommendation of the Selection Committee, the CBI Governor will announce the Foreign Banks selected to proceed to Stage 2.
The CBI is committed to carrying out a selection process that is fair and transparent to all parties. Selection Committee members will be vetted to ensure that there are no conflicts of interest with Foreign Banks responding to this RFA. It is incumbent upon the applicant to clearly identify information in its submission that should not be made public.
The planned calendar for the selection process is as follows:
Date_____ Selection Process
November 5 Request for Applications issued by posting complete copies of it on the CPA website (www.coalitioniraq.org).
November 15 Question period closes.
November 19 Q & A’s will be posted on the CPA website for all participants to view, without the names of those submitting questions.
November 26 Responses to the RFA are due at 5 PM Baghdad time in electronic form at RFAmailbox@central-bank-iraq.org and in hard copy to DHL for delivery to the address specified herein.
By December 8 If applicable, Foreign Banks requested to make oral presentations are notified.
By December 15 If applicable, presentations to Selection Committee at a location to be decided.
By December 22 Notification to Foreign Banks selected to proceed to Stage 2.
Reservations of Rights
The CBI reserves the right to: (i) modify this RFA in whole or in part; (ii) not award any banking licenses pursuant to the RFA; (iii) request additional information or clarifications from individual applicants; and (iv) reject any proposals it considers to be non-responsive or to be submitted by a party which, in the CBI’s sole judgment and discretion, the CBI does not deem responsible.
Format of Written Application
The written response to this RFA should be structured as follows:
The following paragraphs provide guidance on the information that should be included for each of the seven areas. Please ensure that such information is presented in a clear, concise, and comprehensive manner. Excessive or elaborate applications, or departures from the stipulated format, could cause the proposal to be disqualified or otherwise penalized in the evaluation process. If there are explicit expectations or implicit assumptions in the RFA that you consider to be unrealistic or that you cannot provide, please provide information to clarify the issue for the Selection Committee.[6]
1. General Description
Provide a general description of the Foreign Bank, including its ownership structure, asset size, number of employees, location of headquarters, foreign supervisory authority, capitalization, and credit ratings. Include the legal name of the Foreign Bank, mailing address, telephone, and fax numbers of the office providing the proposal. Also provide the name, mailing address, e-mail address, telephone, and fax numbers of the individual who will ultimately be responsible for the services and performance of the Foreign Bank’s proposal under this RFA. If different, please provide the name and contact information of the individual whom the CBI should contact regarding matters relating to this RFA (e.g., notification of selection to advance to Stage 2).
2. International Presence
Describe in general terms the Foreign Bank’s international presence. Provide data on the number of branches and offices on a worldwide basis. Provide more detailed information on your firm’s activities and strategy in the Middle Eastern region and on how your proposed presence in Iraq would fit into your institutional strategy. Also, provide information on the Foreign Bank’s experience in developing economies.
3. Business Plan
Submit a business plan that, at a minimum, addresses the applicable criteria listed below in the “Selection Criteria” section. Also, refer to the Iraq Banking Law, Article 5, Paragraph 2(f), which provides additional information as to the contents of the business plan. The plan should cover a minimum of three years. A primary goal of the Foreign Bank should be to establish the core operating unit in Baghdad (or elsewhere in Iraq) as soon as suitable facilities can be identified and the security situation permits normal bank operations. Also, describe the legal structure you would propose to use for the bank operations (subsidiary or branch).
Include a summary of credit policies and procedures and an outline of your lending strategy for Iraq. Also, include information regarding the risk management practices that the Foreign Bank will use in Iraq.
4. Bank Organization
List the key personnel who will be assigned to Iraq and describe their responsibilities. Identify in detail the staffing, skill mix, level of expertise and minimum qualification requirements for personnel. Resumes for all key personnel should be provided.
5. Technology Transfer
Describe the technology you will bring to Iraq. The Foreign Bank will need both front and back office systems to process banking transactions. In addition, it will need the computer hardware and communications equipment to make these systems operational. The Foreign Bank will be responsible for its information technology equipment, including all computer hardware, software, and communications technology.
6. Training
Describe your training strategy. Training will be a crucial element of the Foreign Bank’s activities. Training programs should be initiated immediately on a needs-appropriate basis. The need for training is broad based ranging from basic data entry training on the systems to risk management practices and legal issues.
7. Preliminary Due Diligence Information
To enable the CBI to perform a preliminary due diligence review of your application, please include the following:
a. A list of controlling owners of the Foreign Bank, and if applicable, its ultimate parent. (Control is defined in Article 1 of the Iraq Banking Law.)
b. A list of subsidiaries of the ultimate parent and their place of incorporation.
c. Identify the source and amount of funds that will be used in capitalizing the Iraqi bank, if applicable.
d. Any critical findings or letters issued by the applicant’s foreign supervisory authority with respect to the applicant within the last three years.
e. A list of any financial or other penalties imposed by the applicant’s foreign supervisory authority on the applicant within the past ten years and the reasons for those penalties, along with any pending legal actions (either civil or criminal).
f. Copies of the latest three audited annual financial statements, including balance sheets and profit and loss accounts of the Foreign Bank and for its top tier parent, if applicable. Note the accounting standards used, for example IAS. If not IAS, please describe the differences from IAS. If the Foreign Bank has received a “qualified” opinion in the last three years, so state.
g. Describe the home country requirements designed to deter money laundering, terrorist financing or other illicit activities.
h. Describe the Foreign Bank’s policies and procedures to prevent its operations from being used for purposes of money laundering, terrorist financing or other illicit activities.
i. Provide a statement on the parent bank’s implementation of the institution-specific recommendations of the FATF Forty Recommendations[7] regarding the prevention and detection of money laundering, along with the Eight Special Recommendations to combat terrorist financing.
The CBI Governor will select those Foreign Banks that are the most committed and best able to contribute to the development and modernization of the Iraqi banking system and the sound growth of the Iraqi economy. In recommending which Foreign Banks are selected to advance from Stage 1 to Stage 2, the Selection Committee will evaluate how each submission addresses the criteria below. Through their written response to this RFA, Foreign Banks are encouraged to include other ways to address the goals of the CBI.
The selection criteria below should be addressed in the written application, within the six areas listed above under the “Format for Written Application” section.
The CBI would like to thank you in advance for your interest
in this RFA.
Appendix A
Licensing Process (Stage 2)
After a Foreign Bank is selected to advance to Stage 2, the Central Bank of Iraq (CBI) will perform further due diligence on the Foreign Bank. The following information will be requested so that the CBI can make a final determination as to the Foreign Bank’s suitability to be granted a license. The CBI will review the information submitted as it relates to the Iraq Banking Law promulgated September 19, 2003, and other suitability criteria it deems necessary. The CBI will not grant a license for the Foreign Bank to operate in Iraq until the CBI completes its due diligence. Based on its further review, the CBI reserves the right to deny a license to a Foreign Bank applicant.
A Foreign Bank may, but is not required to, submit this information with the RFA. The CBI may request additional information.
Foreign Supervisory Authority
· For your information, the Fiscal Year in Iraq ends on December 31. Banks are required to submit their audited FYE financial statements to the Iraqi Supreme Board of Audit by March 31 of the following year. The approved financials must be published in two gazettes by June 30 of that year.
· Describe the components of capital proposed for the Iraq bank, if applicable.
· If the home country capital standard differs from that established by the Basel Accord, please explain the requirement and the Foreign Bank’s capital position relative to its home country requirements.
Key Personnel [8]
[1] The Iraq Banking Law was promulgated by CPA Order Number 40 on September 19, 2003.
[2] Under the Iraq Banking Law, a branch of a foreign bank is granted a “permit” to operate. For purposes of this RFA, the term license also refers to permits.
[3] Defined in the Iraq Banking Law.
[4]With the exception of branches, which do not require capital.
[5] If there is an inconsistency between English and Arabic translations, the English translation will prevail.
[6] Questions and comments can also be directed to the email address noted in the “Proposal Information and Evaluation” section of this RFA.
[7] The Financial Action Task Force (FATF) sets out the framework for anti-money laundering efforts, which is designed for universal application.
[8] Key personnel means any person who is a member of the Iraq bank’s board of directors, authorized manager or member of the audit committee of a bank, and in the case of a branch, the designated branch manager. Also, any person that has the authority to participate, or influence major policymaking functions within the bank.