In an attempt to capture the global market, JPMorgan Chase & Co. (JPM - Free Report) plans to expand its business in Iraq – OPEC’s (Organization of the Petroleum Exporting Countries) second largest country after Saudi Arabia. JPMorgan entered into a one-year definitive agreement with Trade Bank of Iraq to finance the latter’s import of goods and services.
With this, JPMorgan would be in a position to assist Trade Bank of Iraq in opening more letters of credit in the country. Previously, JPMorgan had helped the bank to aid imports required for the country’s post-war restructuring.
Iraq is the world’s fifth-largest proven oil reserve. Nevertheless, after being battered by crippling wars and neglect for decades, Iraq gradually initiated the process of improving its infrastructure and energy industry. As per Bloomberg, Iraq produced nearly 3.2 million barrels a day of crude oil in Jun 2013 and has further targeted to produce over 3.5 million barrels a day by the end of 2013.
Moreover, the government has increased its spending by 18% to $118 billion in 2013. Additionally, according to International Monetary Fund (IMF), the annual economic growth rate of Iraq is expected to be 9%. Moreover, the increase in Iraq’s oil exports and a fall in the prime lending rate from 17% to 6% are a major boost to its expansion plans.
Previously, till 2003, foreign banks were prohibited from trading in Iraq. However, following the expulsion of the Saddam Hussein government in 2003, international banks were permitted to operate in Iraq. As per the central bank’s website, currently, 15 international banks have their operations in Iraq, which includes majors like Citigroup, Inc. (C - Free Report) , Standard Chartered PLC (SCBFF - Free Report) and HSBC Holdings plc .
Citigroup plans to benefit from the $1 trillion estimated infrastructure spending by the government of Iraq by opening representative offices and branches in Baghdad as well as in the cities of Basra and Erbil. Citigroup also plans to finance a pipeline to export Iraqi oil and natural gas through Jordan.
Alongside, Standard Chartered is planning to expand its transaction banking business in Iraq by opening branches in Baghdad and Erbil in 2013 and Basra in 2014.
JPMorgan currently carries a Zacks Rank #2 (Buy).