Iraq’s Banking Sector Reboot: Sweeping Reforms by the Central Bank
The Central Bank of Iraq (CBI), with full government support and in partnership with global consulting firm Oliver Wyman, has officially launched a far-reaching reform program for the country’s private banking sector. The aim is to bring Iraq’s banks in line with international standards, modernize infrastructure, boost sector efficiency, and rebuild public and investor trust.
This comprehensive plan is the product of collaboration between the CBI, the government, and the private sector, and it targets the creation of a resilient, innovative, and sustainable banking system that underpins Iraq’s economic development.
Key Objectives of the Reform:
• Expand and deepen financial inclusion for individuals and businesses across Iraq
• Enhance the efficiency and productivity of private banks
• Foster a competitive, fair banking market that can withstand financial and economic shocks
Core Reform Projects:
- Upgrade financial infrastructure, expand branch and ATM networks to improve access
- Develop digital payment systems for fast, reliable banking services
- Streamline anti-money laundering (AML) and counter-terrorism financing (CTF) compliance
- Implement a digital identity system to ensure secure customer verification
- Launch national campaigns to boost public trust and financial literacy
New Banking Standards:
Ownership & Governance:
- Caps on ownership: 10% for individuals/corporations, up to 20% by exception, 60% for institutional investors
- Aggregated ownership rules to prevent coordinated control
- Mandatory independent, qualified Boards of Directors; rigorous checks for executives
- Intensive due diligence for major shareholders to ensure transparency
Business Model & Sustainability:
- Banks must develop detailed, sustainable business plans aligned with Iraq’s needs and adopt new technologies
- Core banking services should reflect the requirements of the Iraqi economy and its citizens
Financial Metrics:
- Minimum capital adequacy ratio: 12.5%
- Minimum liquidity coverage ratio: 100%
- Banks must build resilience to withstand financial shocks
Risk & Regulatory Compliance:
- Full adoption of international AML/CTF frameworks
- Greater transparency, with robust external audits and oversight of related-party transactions
Implementation Process:
- Reform will be phased; all private banks will undergo regular evaluations
- First compliance evaluation set for Q1 2026
- CBI to issue formal standards, timelines, and launch workshops/technical support soon
- All licensed banks required to confirm participation in the reform process
Strategic Choices for Banks:
1. Internal upgrades to meet standards
2. Mergers/consolidation with other banks for greater strength
3. Exit the sector (sale or orderly wind-down) for those unable to comply
Impact on Iraq Stock Exchange (ISX):
- Reforms expected to lift investor confidence, especially among foreign institutions
- Anticipated rise in bank M&A activity, potentially increasing share prices and trading volume
- Improved governance, making listed banks more attractive
- Pressure on weaker banks, driving reform or exit
Conclusion:
This ambitious reform signals a turning point for Iraqi banking. Backed by government and private sector cooperation, the CBI aims to transform the financial system—making it modern, resilient, transparent, and globally connected.
The goal: a trustworthy banking environment supporting Iraq’s sustainable growth and opening the door to domestic and international investors.
