Iraq: What is the state of the Iraqi banking sector and how is it evolving?

The Iraqi banking sector is primarily characterized by the predominance of the state, a legacy of the Ba’athist era.

The country’s seven state-owned banks hold more than 80% of the country’s total banking assets and focus primarily on financing public and semi-public sector enterprises. The country’s two main state-owned banks, Rafidain Bank and Rasheed Bank, do not publish consolidated financial statements and report significant deficiencies in their governance and management.

Among the state-owned banks, the Trade Bank of Iraq (TBI), established in 2004, stands out for its specialization in trade finance activities and its leading role in financing Iraqi international trade.

Iraqi private banks are divided between a group of small, family-run banks and subsidiaries of foreign banks, primarily from the region, such as the National Bank of Iraq (a subsidiary of Capital Bank of Jordan), the Bank of Baghdad (a subsidiary of Kuwaiti Burgan Bank), and Mansour Bank (a subsidiary of Qatar National Bank).

The latter are considered more reliable and are capable of holding accounts for foreign companies operating in Iraq. However, Iraqi private banks lack transparency regarding their activities and have high non-performing loan rates, around 14% of total loans. Furthermore, Iraq only partially and incompletely implements Basel standards for prudential regulation and has a vague framework for managing banking crises.

Under these conditions, Iraqi banks contribute little to financing the country’s economy.

Credit volume represents 9% of Iraq’s GDP, a lower ratio than in neighboring countries (1), while only 19% of adults hold a current account. The prevalence of a cash economy, in which cash accounts for 57% of the monetary base, does not encourage the growth of bank balance sheets. Neither the still-nascent Iraqi microcredit sector nor the capital markets (less than 5% of GDP) can compensate for the low level of banking penetration in the Iraqi economy.

Aware of these challenges, the Iraqi government has made banking sector reform a priority in its economic program.

A thorough review has been launched of Rafidain Bank and Rasheed Bank, which could ultimately lead to a restructuring of their balance sheets, a reorganization of their operations, and a gradual withdrawal of the state.

Above all, the government is seeking to promote the expansion of the private banking sector.

The Central Bank of Iraq (CBI) partnered with the consulting firm Oliver Wyman in 2025 to develop a plan for modernizing the banking sector. As a result of the ongoing process, Iraqi banks will either have to fully comply with new governance and risk management standards or merge with another bank, failing which they will have to relinquish their licenses.

This plan also places significant emphasis on financial inclusion and the modernization of payment systems, as well as the development of banking infrastructure (branches, ATMs). Its implementation is scheduled for completion in 2026.

(1) This ratio is, for example, 48% for Turkey, 52% for Saudi Arabia, 64% for the United Arab Emirates, and 100% for Qatar.

Source: French Embassy in Baghdad