The banking industry in Iraq has a significant impact on the development of the national economy. Important organizations that are part of Iraq’s financial system are the International Development Bank, National Bank of Iraq, Bank of Baghdad, Rafidain Bank, Al-Rasheed Bank, and Commercial Bank of Iraq. Despite their substantial contributions to investment, development financing, and financial intermediation, there are still obstacles that prevent them from reaching their full potential.
Iraq’s banking industry is broad, comprising both state-owned behemoths like the National Bank of Iraq, Al-Rafidain, Al-Rasheed, and the Commercial Bank of Iraq, as well as private organizations like the International Development Bank and the Bank of Baghdad. Iraqi banks serve a vital role in the financial system, but they also confront significant obstacles that restrict their efficacy. Each institution has a distinct function to play in financial stability, growth, and development. These institutions have been hampered by party and sectarian quotas in the banking sector as well as financial and administrative malfeasance. The main limitations on the Commercial Bank of Iraq, which was founded in 2003 under coalition control, are lending to the government.
Apart from the barriers to financial facilitation, the Trade Bank of Iraq restricts the capacity of commercial banks to facilitate trade by imposing stringent criteria on them. Excessive guarantees of up to 110% hinder local businesses and prevent them from engaging in cross-border transactions. The procedure becomes more difficult due to concerns with transparency and the need for professional staff, which results in different treatment for local and foreign clients.
Regarding the World Bank and local loans, it is concerning that the bank has only been able to secure fewer than 5% of modest projects through Iraqi local loans, even with attempts to bolster local finance. Iraqi banks’ strict efficiency requirements, particularly when it comes to investment projects, are in contradiction with international norms, which might impede the nation’s economic growth.
The public’s faith in the financial sector is impacted by the difficulties Iraqi banks are facing. One of the main reasons people are reluctant to deposit money in banks is the lingering memories of the 2003 invasion’s looting and theft. Only 23% of Iraqi families, according to World Bank data, have accounts with financial institutions, indicating a general lack of trust in the banking industry.
Economists claim that this industry is beset by the dollarization conundrum, that official language and actuality are glaringly at odds, and that although the government promotes saving money in banks, essential services and legislative changes are still lacking. Ghanem notes that significant losses in hard money occur because Iraqi banks do not accept deposits in dollars for savings. The preference of many Iraqis to keep their wealth in US dollars at home undermines trust in local currencies.
A thorough strategy is required to solve these issues. Reforms targeted at lowering corruption, enhancing transparency, and streamlining banking processes may increase Iraqi banks’ efficiency. Rebuilding public trust can also be aided by promoting digital payment systems and financial education. To make a bigger contribution to the economic development of Iraq, the banking industry will need to find a way to combine enforcing regulations with promoting economic growth.
