Banking in Iraq has a chequered history: foreign institutions were forced out in the 1960s and ordinary Iraqis saw arbitrary regulations slapped on their deposits through the years of war and sanctions. But at least many banks are now open - even if they are protected by barbed wire and armed guards.

"Now you can buy and sell dollars in the central bank. Before we used to buy [hard currency] from people in the streets," says Saad al-Bunnia, chairman of the Iraqi bankers association and of the private sector al-Warka Investment Bank.

"[But] the Iraqi does not have confidence in banking . . . because one day you would wake up in the morning and there was a new law which says that you are not allowed to withdraw more than 500,000 Iraqi dinars from your account. How could you run a business like that?" he asks.

From the 1960s, most of the Iraqi banking system was dominated by the state-owned Rafidain and al-Rashid banks. Then after the first Gulf war, the Ba'athist regime gradually licensed 17 private sector institutions, including al-Warka.

When the invasion was launched last year, Mr Bunnia says that the private sector banks held about 8 per cent of deposits.

A number of non-Iraqi banks are also due to hear soon whether they have succeeded in getting through to the second stage of a tendering process which may see foreign institutions returning to Iraq for the first time for 40 years.

The "strong assumption" is that those who reach the second stage will be offered licences, according to an official with the US-led Coalition Provisional Authority. Those that choose to open full subsidiaries have to commit to a $25m (19.8m, £13.6m) capital requirement.

As with much else in Iraq today it is uncertain when exactly the announcement about the foreign banks is due to be made. HSBC confirms its interest. Citibank says "not for the moment".

Currently domestic private sector banks are forbidden by the central bank to export funds. They are confined to foreign exchange activities - mainly trading in dollars and, as of yesterday, euros. They can also act as correspondents for letters of credit. In the absence of fixed telephone lines their main means of communication with the outside world are the internet and satellite phone.

Mr Bunnia welcomes the prospect of foreigners returning to Iraq, but questions whether managers will commit to doing so in the current environment.

"There is room for everyone - look at Lebanon," he says. A far smaller country than Iraq with fewer natural resources, Lebanon has more than 50 private sector domestic and international banks active in the country.

Iraq's difficulties are complicated by legal questions. The problem surrounding the tendering of mobile phone licences last year was in part one of jurisdiction - a turf war between the CPA and the nascent ministry of communications.

A similar situation appears to prevail in the financial sector. Mr Bunnia says he has to contend with three different authorities.

"I would welcome [the foreign banks] because then they will put pressure on the CPA and on the central bank," he says.