The banking and financial sectors in Iraq: Paths towards an integrated economy
The banking and financial sectors in Iraq: Paths towards an integrated economy
9-1-2025
Researcher Shaza Khalil
The banking sector remains the backbone of the financial system in Iraq, focusing on attracting deposits and providing loans. Although the Iraqi government and the Central Bank have adopted a strategy in recent years to promote financial inclusion and expand the use of electronic payments to increase the volume of banking transactions, the results have been complex. Despite the significant growth in the volume of electronic transactions, this increase has not been reflected positively in the value of deposits in public and private banks, which have instead recorded a sharp decline.
Data from the Central Bank of Iraq indicates that deposits in government banks decreased by 11.3% during the first half of 2025 compared to the first half of 2024, while private banks recorded a 7.18% decline compared to the second quarter of 2024. Current deposits continue to represent the largest share of total deposits, accounting for 84% of total deposits in government banks and 76% in private banks, representing an overall average of 82.23% across the banking sector as a whole. Government banks also maintain market dominance, accounting for approximately 85% of total deposits, compared to only 15% for private, commercial, Islamic, and foreign branches combined.
This extreme concentration reflects the fragility of the banking structure and confirms that reliance on government banks alone limits market dynamism and weakens the private sector’s ability to grow and compete. From a practical standpoint, any economy seeking integration requires a balanced distribution of financial resources between the public and private sectors, in addition to the development of modern financing tools that link banks to productive sectors.
Iraq Stock Exchange Status
The Iraq Stock Exchange was supposed to complement the banking sector by offering higher-risk but higher-return investment opportunities. However, the market’s performance in 2025 reflected a deep crisis of confidence. Monthly trading values declined by 38% in the first half of 2025 compared to 2024, reaching their lowest level in June 2025 at just 22 billion dinars, the lowest level in two years.
One structural problem lies in the concentration of trading in the hands of just five of the 104 listed companies, which account for more than 85% of trading volume. With the withdrawal of foreign investors, the market has lost one of its most important drivers, which it relied on to open the doors to foreign investment.
Challenges and opportunities
Both the banking sector and the stock market suffer from structural problems related to a loss of confidence, excessive concentration, and weak diversification. Declining bank deposits, coupled with a decline in stock market trading, reflect a dual loss of confidence in both sectors. However, from a practical perspective, these challenges represent opportunities for reform through:
Expanding true financial inclusion, so that it goes beyond electronic payments, but also includes innovative savings and investment tools.
A comprehensive regulatory review of the stock exchange to enhance transparency and encourage the listing of new companies across diverse sectors.
Strengthening the private banking sector to create a balance with government banks, thus supporting competitiveness.
Towards an integrated economy
The integration of the banking and financial sectors could form a fundamental pillar of economic transformation in Iraq. Banks, while safer and less profitable, provide a foundation for stability and liquidity, while the stock market provides a space for directing investments toward productive sectors with high returns. If the two sectors are reorganized within a coherent economic framework based on transparency and diversity, they will complement each other and form a platform for attracting local and foreign investment.
By balancing banking security with growth opportunities in the stock market, Iraq can build an integrated economy that enhances confidence, encourages community participation, and establishes long-term economic stability.
Economic Studies Unit / North America Office
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