DUBAI (REUTERS) - Citigroup Inc said on Monday it had obtained approval from Iraq's central bank to open a representative office in that country, becoming one of the first global banks to set up there since the US-led invasion of 2003.

The lender said it would open an office in Baghdad and hoped eventually to set up in the cities of Erbil and Basra, subject to regulatory assent.

While rising oil production is helping Iraq's economy recover from years of conflict, sectarian tensions and violence by militants continue to deter many international firms from investing. Also, the banking sector is dominated by two state-owned institutions, Rafidain and Rashid, making it difficult for other lenders to compete.

Since last year, some Gulf banks have opened offices in Iraq, including Abu Dhabi Islamic Bank and Qatar National Bank, while Standard Chartered has a representative office there and has said it hopes to open full branches this year.

HSBC, which operates in Iraq through a 70 per cent stake in Dar Es Salaam Investment Bank, said in April it was reviewing its operations in the country. The bank, which is cutting some operations around the world, did not elaborate.

Mr James Cowles, Citigroup's chief executive for Europe, the Middle East and Africa, said in a statement that having a presence on the ground would help his bank design services for Iraqi clients and provide opportunities for Citigroup customers outside the country to develop links in Iraq.

Citigroup has been running an Iraq desk out of Amman in neighbouring Jordan, headed by Mr Dennis Flannery, who will take charge of the representative office in Baghdad.