LONDON, 15 June 2003 — HSBC and Barclays are among a small group of banks in talks with the UK and US governments about rebuilding the Iraqi banking system.

The contracts could be worth hundreds of millions of pounds and would see the banks taking a lead role in the financial structure of what could prove to be a wealthy country in the future.

US estimates put the GDP of Iraq at around $29 billion (17.4 billion pounds sterling) prior to the war and it is predicted that oil revenues alone could reach $18 billion a year once the oil fields are back to full production. However, the war, and the years of isolation that Iraq has suffered under Saddam Hussein’s rule, have left the banking system in tatters.

The new administration in the country, called the Office of the Coalition Provisional Authority and headed by Paul Bremer, has set as an urgent task restoring normal banking and commerce. It has opened talks with a small group of banks. These are understood to include three large US groups, J.P. Morgan Chase, Citigroup and Bank of America, and two of the UK’s leading banks, HSBC and Barclays. A third UK bank, Standard Chartered, has expressed interest in getting involved, as it has an expertise in rebuilding damaged financial systems.

It is understood that the urgent needs are for a payments system, trade finance facilities and foreign exchange services. The country will need to rebuild its retail banking system, though this could take years of hard work. The current financial system is in anarchy. The central bank in Baghdad was looted of hundred of millions of dollars shortly before the capital fell to US forces. It is believed that Saddam Hussein’s sons may have been behind the looting.

Though the old Iraqi dinar is holding its value, the dollar has become a shadow currency, with US forces flying in pallets of bank notes to pay its soldiers.