2025-08-17T14:03:00+00:00
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Shafaq News
Iraq’s banking sector is facing one of its most critical
junctures in years as the Central Bank of Iraq (CBI) rolls out new reform
standards. While the measures aim to modernize the financial system and align
it with global practices, economists and lawmakers warn they may be “impossible
to implement” under Iraq’s current economic and political conditions.
Reform Targets and Investor Reluctance
At the center of the new requirements is a mandate for banks
to raise their capital to 400 billion dinars (around $306 million) by the end
of 2025. The target, however, appears increasingly unrealistic. According to
economic expert Ahmad Abed Rabbo, investor reluctance—largely driven by US and
international sanctions on dozens of Iraqi banks—makes such capitalization
nearly unattainable.
Speaking to Shafaq News, Abed Rabbo acknowledged that the
reforms contain positive elements but insisted that many conditions require
urgent revision. He described the capital increase as “illogical,” particularly
as many banks are barred from dollar transactions, suffer from low market
value, and lack robust financial operations.
The economist also criticized additional burdens, including
$2 million in mandatory service fees for reform consultancy firms approved by
the Central Bank. He dismissed the figure as “exaggerated,” noting that banks
had no prior agreement to allocate such sums. Another contested measure is the
10% ownership limit, which he argued deters potential investors, especially
when most banks are already loss-making.
Abed Rabbo called on the Central Bank to involve private
banks in shaping a new reform framework tailored to Iraq’s circumstances.
Extending the timeline, he said, is essential to prevent forced liquidation or
marginalization. “Reforms are indispensable,” he emphasized, “but they must be
practical and context-driven—not a mechanism for eliminating banks from the
financial system.”
Strict Standards or Structural Weakness?
Economic expert Mustafa al-Faraj described the Central
Bank’s conditions as “strict and impossible” in the face of Iraq’s fragile
financial environment. In comments to Shafaq News, he criticized the lack of
direct support from the CBI, saying the institution should prioritize technical
and financial assistance, debt rescheduling, lower interest rates, and
government-backed incentives before demanding capital hikes or foreign
partnerships.
He warned that without such support, many banks risk
collapse, as the current climate is unsuitable for attracting foreign
investors. Instead of strengthening the sector, “the reforms could accelerate
liquidations and forced mergers.”
Al-Faraj acknowledged that the Central Bank’s intent to
reform is genuine but warned the approach is detached from reality: “If the
goal is to establish a resilient banking sector, the starting point must be
real support and phased reforms—not measures that paralyze banks before they
can recover.”
Parliament’s Alarm Over Sanctions and Oversight
From the legislative side, Kazem al-Shammari, a member of
the Parliamentary Economic Committee, pointed to an even deeper problem:
sanctions. He revealed that about 30 of Iraq’s 70–80 operational banks are
currently under sanctions, while most others perform only basic transfer
operations rather than comprehensive banking services such as deposits,
lending, or financing.
Al-Shammari argued that non-sanctioned banks, if properly
supervised, could adapt to the reforms. Yet, he cautioned that weak regulatory
oversight and political interference remain the biggest obstacles. “Without
effective monitoring, no real results can be achieved,” he said, stressing that
government involvement in banking operations contradicts international norms of
independence and financial freedom.
He further questioned why only Iraqi and Lebanese banks are
being penalized for dealings with sanctioned states like Iran, while no other
regional institutions have faced similar consequences. “This issue goes beyond
Central Bank policy,” he explained, linking it to broader state-level decisions
and political pressure.
Between Compliance and Collapse
For Al-Shammari, international standards are a double-edged
sword. On one hand, compliance could open the door to foreign investment and
integration with Gulf and global financial systems. On the other, applying such
standards in Iraq’s unstable environment risks undermining already fragile
institutions.
“If Iraqi banks uphold transparency and integrity, they can
attract major global partners and foreign investments,” he predicted, adding
that success in this direction could lay the foundation for rebuilding Iraq’s
financial infrastructure.
Written and edited by Shafaq News staff.
