Iraq is on the verge of a boom in project finance as power plants, shopping malls and general infrastructure investment starts to kick in and violence continues to subside, the country's trade bank said.

Increasing numbers of foreign bankers have been flying into Baghdad to check out business opportunities and the security environment has improved sufficiently for investors, both overseas Iraqis and foreigners, to accept the risks, said Hussein al-Uzri, chairman of the state-run Trade Bank of Iraq.

'In the last three months I am seeing quite a lot of interest. There are banks coming to Iraq, visiting as well as looking for opportunities. Swiss banks have been here, US banks,' Uzri told Reuters in an interview.

'We think that project financing will be the next big thing in Iraq. I believe that people are willing to take risk in Iraq,' Uzri said.

Battered by years of war and sanctions, Iraq is in dire need of improved infrastructure, and opportunities abound for developers of housing, power stations, hotels, malls, schools, roads and airports.

However, there remain checks. Uncertainty surrounding a planned January national election, expected to be delayed because of wrangling between Sunni, Shi'ite and Kurdish politicians, is tempering investor's appetite.

An ambiguous legal environment, red tape and corruption also remain concerns for investors, but an investment law passed by Iraq's parliament on Monday may smooth the investment process.

The law, which must next be passed by Iraq's presidential council, allows foreign ownership of real estate for housing projects, and aims to make obtaining an investment licence easier.

Private sector lending up

The Trade Bank of Iraq was established after the 2003 US-led invasion. Less burdened than other Iraqi state banks by a history of bureaucracy, it has enjoyed healthy growth, more than doubling its assets to $6.1 billion in 2007 from $2.8 billion the year before.

Most of its business relates to financing government transactions, such as grains and foodstuffs imports, the purchase of oil equipment and infrastructure such as the construction of power and water treatment works.

But 40 percent of its income now comes from loans to private sector projects, a move seen by economists as essential if Iraq is to wean its economy off the state-dominated oil sector.

The bank sees its role as a catalyst for economic regeneration after more than six years of sectarian warfare set off by the invasion and preceding decades of economic decline.

Of $9.5 billion extended in letters of credit for trade in 2008, $1.5 billion went to the private sector. This year letters of credit to the sector would reach $2.6 billion, Uzri said.  Uzri said the bank was focusing on attracting Iraqi capital back into the country. That in turn would convince foreign investors the time had come.

'Security has improved. And I'm sure elections will take place,' he said. The election due in January has been held up by political disagreement over a law needed for it to take place. – Reuters