Iraq has signed multi-billion deals with oil firms to boost output capacity to 12 million barrels a day in seven years.

This could give Iraq the money to rebuild after decades of war, sanctions and economic degradation, opening opportunities to the banking sector in financing projects. Today, Iraqi banks are hardly lending to private companies due to limited capital.

“The banks so far have not been able to lend in any structured manner,” Eric le Blan, chief operating officer of boutique investment firm MerchantBridge, told reporters.

MerchantBridge owns a majority stake in an Iraqi lender, Mansour Bank, which plans to raise its capital to $150m.

Le Blan said that to meet the new regulatory requirements and an increased demand in lending by the private sector banks needed to raise at least $10bn over the next three years.

Lack of experience
New rules by the central bank force Iraqi banks to raise their capital to at least 250 billion Iraqi dinars ($214m) by 2013, according to a memo seen by reporters.

Capital could come from regional banks, in particular from Lebanon, as well as from some international banks, said le Blan.

He said risks to foreign investors included Iraq’s lack of experience with banking failures. The higher capital requirements were expected to force Iraqi banks to consolidate.

“You are going to see a few leading banks surviving and the rest falling apart very quickly,” said le Blan.

“The central bank is still in training mode.”

Iraq is in a political impasse after general elections in March produced no outright winner and as yet no new government, a vacuum that observers say slows down government spending and the development of the country’s state institutions.