The Truth Behind the Scenes: What’s Not Being Told About Iraqi Bank Reform

The Truth Behind the Scenes: What’s Not Being Told About Iraqi Bank Reform

2025-08-08 05:12

Shafaq News – Baghdad
Iraqi banks face unprecedented challenges under a set of reform measures launched by the Central Bank of Iraq, which observers and economic experts view as more like “unreasonable conditions than a realistic reform plan.”

While experts emphasize the importance of reform, they call for a review of the existing mechanisms to ensure they are consistent with the specific nature of Iraqi reality and the banks’ ability to fulfill their economic role.

The Central Bank of Iraq has set a set of standards for reforming the banking sector, most notably increasing capital to 400 billion dinars by December 31, 2025. This is despite investors’ reluctance to subscribe to its shares due to the sanctions imposed on it, making this requirement nearly impossible to achieve, according to economic expert Ahmed Abd Rabbuh.

Taking into account the specificity of reality

Abdul Rabbo confirmed to Shafaq News Agency that the reform criteria set by the Central Bank of Iraq, while containing some positive aspects, include essential points that require a comprehensive review to reflect the reality of Iraqi banking.

He points out that the demand to increase banks’ capital to 400 billion dinars before the end of 2025 is illogical, especially given that “the majority of these banks are sanctioned, banned from dealing in dollars, have low market shares, and do not have significant banking operations,” he said.

Regarding the other financial aspect, Abd Rabbuh criticized the imposition of fees of up to $2 million on banks for services provided by certified repair companies, considering this amount “exaggerated, especially since the banks had not previously agreed with the Central Bank to grant these companies such sums.”

The economic expert also stresses that the requirement to limit ownership to no more than 10% is also unworkable, explaining, “It is illogical to impose this requirement in the absence of an investment sector willing to invest in banks suffering losses.”

Abdul Rabbuh called on the Central Bank to engage private banks in formulating a new reform vision that takes into account “the unique circumstances in which these banks were established, the nature of their ownership, and the economic challenges they face,” emphasizing the importance of extending the reform period to a longer timeframe.

He warns against forcing banks out of the banking system if the conditions are not met, stressing that “such an approach could cause real problems for banks and their clients.”

He stressed that “reforms are necessary, but they must be realistic, applicable, and relevant to the Iraqi context, rather than becoming a means to liquidate or marginalize banks.”

“Strict and crippling” reforms

For his part, economic expert Mustafa Al-Faraj criticized the standards set by the Central Bank of Iraq for banking sector reform, describing them as “strict and prohibitive” given the complex economic conditions facing Iraqi banks.

Al-Faraj told Shafaq News Agency, “The absence of direct support from the Central Bank for local banks raises many questions, especially since these banks are the cornerstone of the national economy.”

He points out that “instead of imposing stringent conditions such as raising capital and having a foreign partner, the Central Bank would have been better off rescheduling obligations, providing financial and technical support, reducing interest rates, or even offering government incentives to encourage subscription.”

He adds that the Iraqi banking sector is still recovering from the effects of sanctions and economic turmoil, making the implementation of these standards difficult, if not impossible, without clear support from official bodies.

Al-Faraj asserts that the Central Bank’s standards “reflect a sincere intention for reform, but they clash with a complex economic and banking reality, as banks do not have the capabilities required to fully comply with these conditions without real support.”

He also points out that the current investment environment is not conducive to attracting foreign partners, which places many banks in a difficult position and threatens to push them toward liquidation or forced mergers instead of empowerment and development.

Al-Faraj concludes by saying, “If the goal is to build a strong banking sector, the path to achieving this begins with providing real support, taking into account the Iraqi reality, and implementing workable reforms in stages, not by imposing standards that could weaken the sector rather than saving it.”

Transparency and serious commitment

For his part, Kazem Al-Shammari, a member of the Parliamentary Economic Committee, believes that a large portion of Iraqi banks are not fulfilling their true role as financial institutions.

Al-Shammari told Shafaq News Agency, “Out of 70 to 80 banks operating in the country, approximately 30 have been sanctioned, while the vast majority of other banks are limited to executing remittances only, without offering integrated banking services such as deposits, loans, or contributing to financing investment projects.”

He explained that “if the Central Bank of Iraq directs direct follow-up to non-sanctioned banks and emphasizes the need to meet the requirements of international companies, these banks will be able to respond and adhere to the required standards.”

However, he warns that the lack of official oversight by relevant authorities could lead banks to continue ignoring reform requirements, adding, “The absence of effective oversight does not produce real results.”

Al-Shammari criticizes what he describes as “political interference in banking operations,” arguing that “one of the most significant obstacles to reform in Iraq is government interference in the banking sector, which contradicts the foundations of the global banking system, which is based on independence and freedom of financial activity.”

He continued, “It’s strange that we haven’t seen any non-Iraqi or Lebanese banks penalized for dealing with countries like Iran or entities designated as terrorists. Sanctions are only imposed on Iraqi and Lebanese banks. This is not just a matter of the Central Bank’s policies, but of the state’s policies as a whole, and of pressure from higher-ranking officials trying to push some banks to open up to countries subject to international sanctions.”

Al-Shammari emphasizes that these practices have harmed the Iraqi banking and financial system and created real problems that have negatively impacted the country’s business and investment environment.

Regarding the imposed international standards, Al-Shammari explained that they are “normal standards in a stable banking environment,” emphasizing that “adherence to them can lead to real financial empowerment and help Iraqi banks keep pace with their counterparts in the region, particularly in the Gulf states.”

He concluded by saying, “If Iraqi banks adhere to transparency and integrity, they will be able to attract global banks and major foreign investments, which will significantly contribute to reforming and developing Iraq’s financial infrastructure.”

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