MIGA, a member of the World Bank Group, has issued $67 million in guarantees to BBAC of Lebanon to help increase the loan portfolio of BBAC’s branches in Iraq. This in turn is expected to facilitate the growth of domestic Small and Medium Enterprises (SMEs). MIGA is providing a guarantee for up to five years, covering up to 95 percent of BBAC’s investment of $70 million.
MIGA’s guarantee is mitigating for the risk of expropriation of mandatory reserves that BBAC branches are required to maintain with the Central Bank of Iraq. This requirement affects BBAC’s overall risk profile, and limits the scope of growth for other assets. MIGA’s guarantee allows BBAC to reduce the risk associated with some of its assets, and helps free-up capacity (within regulatory risk limits) to extend more credit in Iraq, focusing on SMEs and the construction sector.
“We are pleased to provide a Capital Optimization Guarantee in Iraq – our first in the Middle East and North Africa Region,” MIGA EVP & CEO Keiko Honda said. “MIGA’s support will help increase access to credit in Iraq and support the private sector in this fragile and conflict-affected state.”
“At 12 percent, Iraq has the lowest credit-to-GDP ratio in the MENA region, with only 9.3 percent directed at the private sector and toward meeting reconstruction needs,” BBAC Chairman & General Manager Ghassan Assaf said. “This guarantee allows us to expand our loan portfolio geared towards SMEs and trade finance in Iraq, which will help promote economic growth and development of the country.”
Lebanese banks have established a proven track record within the MENA region of working successfully in fragile settings. Drawing on the example of MIGA’s support to BBAC, the Central Bank of Lebanon has indicated that going forward, it could support other Lebanese commercial banks in also obtaining MIGA coverage against expropriation of mandatory reserves in Iraq.
BBAC started operations in Iraq in 2009 and has been profitable in the market through investment and trading activities. BBAC is looking to expand its operations and grow its portfolio in Iraq. Nearly 19 percent of BBAC Iraq’s portfolio in FY18 supported SMEs, and close to 60 percent of exposure was in construction loans. MIGA’s support is expected to help increase lending to SMEs by way of increasing working-capital credit lines and trade lines for the construction, retail and wholesale sectors.