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Analysis of The Impact of Financial and Economic Crises on The Stability
of Banks in Iraq For the Period (2005-2022)
Dr. Ayat Ali kadhim
Rashid Bank, Hilla 5 Branch, Central Region Representative, Iraq
Dr. Mustafa Habeeb obaid Al Imari
Collage of Administration and Economics, Department of Banking and Finance Sciences, University of Babylon, Iraq
Suad Hamid Abdul Rasoul
Rashid Bank, Hilla 5 Branch, Central Region Representative, Iraq
A R T I C L E I N f
О
Article history:
Submission Date: 14 May 2025
Accepted Date: 10 June 2025
Published Date: 12 July 2025
VOLUME:
Vol.05 Issue07
Page No. 8-20
D
OI: -
https://doi.org/10.37547/marketing-
fmmej-05-07-02
A B S T R A C T
This study examines the impact of major financial and economic crises
(notably the oil price crash of 2014
–
2015 and the COVID-19 pandemic) on
the stability of the Iraqi banking sector during 2005
–
2022. It focuses on
three key banks: Rafidain and Rashid (state-owned) and the Trade Bank of
Iraq (TBI). Financial data and stability indicators were analyzed for each
bank. The findings indicate that economic downturns linked to oil revenue
shocks negatively impacted the state banks’ credit growth, asset quality,
and capital adequacy. At the same time, TBI maintained relatively high
liquidity and stability due to its role in financing the oil trade. The IMF has
noted that the large state banks became “fragile” after years of on
-lending
to the government, undermining their liquidity and profitability.
Nevertheless, the banking sector’s overall st
ability was supported by
government backing and large reserve buffers (e.g. Rafidain reportedly
holds over $6.5 billion in reserves. The study recommends accelerating
banking reforms: restructuring the major public banks, establishing
deposit insurance, and strengthening payment systems to enhance
financial stability.
Keywords:
Financial Crisis, Banking Stability, Iraqi Banks, Oil Prices,
Liquidity, Trade Bank of Iraq.
INTRODUCTION
The banking sector is a fundamental pillar of any
economy, transferring savings into productive
investments and promoting economic growth. In
Iraq, the stability of banks directly impacts the
ability of the government and companies to finance
projects,
especially
given
the
economy's
dependence on oil revenues, which account for
more than 90% of its revenues. After 2003, the
Iraqi banking system underwent a comprehensive
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Journal
ISSN: 2752-700X
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reconstruction phase, and new laws (such as
Banking Law No. 94 of 2004) were issued to
liberalize the sector and encourage financial
competition. However, the banking system's assets
are concentrated in two large state-owned banks
(Rafidain and Rashid), which account for
approximately 80
–
90% of the sector's assets and
several medium-sized private and Islamic banks.
The Iraqi economy experienced several crises
between 2005 and 2022, the most significant of
which was the global financial crisis (2008),
although its impact on Iraq was limited. The
collapse of international oil prices in 2014
–
2015,
with the rise of ISIS and the war on terror, was
followed by a sharp decline in oil revenues and
government austerity measures. In 2020, the
COVID-19 pandemic struck the global economy,
and oil demand declined. These shocks indirectly
affect Banks in Iraq through their impact on public
finances: government revenues decline, and some
private sector companies default, putting pressure
on the quality of banking assets and their capital
adequacy.
In light of this, the research question arises as to
how these crises affect Iraqi banks' stability
(liquidity, profitability, conventional loan-to-
deposit ratio, non-performing loan rate, etc.).
Recent reports indicate the fragility of the Iraqi
banking sector despite its apparent stability. S&P
has classified Iraq among the "Group 10" of the
world's highest-risk banking systems based on
institutional weaknesses and loose credit
conditions (shafaq.com). Therefore, this research
assesses the effects of Iraq's financial and
economic crises on the stability of major banking
institutions and offers recommendations to
strengthen the banking sector by international
standards.
Research Problem
The research problem stems from the lack of local
and international academic studies on the causal
relationship between economic crises and banking
stability in Iraq. Despite the growing importance of
this sector, banking indicators (such as private
sector deposits to GDP and lending ratios) remain
below international standards, and experts fear a
deepening fragility of large state-owned banks.
The central question is: How did the financial and
economic crises during 2005
–
2022 affect the basic
indicators of the stability of Iraqi banks? Therefore,
the research must clarify how banking credit
activity is affected by oil price fluctuations, the
quality of banking assets, capital adequacy and
liquidity, and the role of monetary and fiscal
policies in absorbing shocks.
Research Hypotheses
The 2014
–
2015 oil crisis and the subsequent
economic slowdown negatively impacted the
liquidity and profitability of major state-owned
banks compared to private or specialized
institutions such as the Iraqi Trade Bank.
Economic crises (such as the 2020 COVID-19
pandemic) have demonstrated the role of the
central banking institution in mitigating the impact
of shocks through stimulative monetary policies
and managing foreign exchange reserves.
Government-owned banks (Rafidain and Rashid)
faced greater financial stability challenges due to
non-performing assets and government loans. At
the same time, the Trade Bank of Iraq (TBI)
maintained relative stability thanks to its unique
financial structure and role in financing foreign oil
trade.
Enhancing
financial
inclusion
and
supporting banking transparency can increase
confidence in the banking sector and mitigate the
impact of crises by reducing the proportion of cash
outside the banking system.
Research Objectives
To measure the impact of financial and economic
crises (such as the 2014
–
2015 oil price decline and
the 2020 COVID-19 crisis) on key financial
indicators of banks in Iraq (liquidity, non-
performing loan ratio, return on assets, etc.). To
analyze
the
differences
between
major
government banks (Rafidain and Rasheed) and
private/specialized banks (such as TBI) in
financial stability performance during 2005
–
2022.
To identify the banking and supervisory measures
the Central Bank and the Ministry of Finance took
to support the banking sector during crises and
evaluate their effectiveness.
To propose practical recommendations to enhance
the stability of the Iraqi banking sector, including
reforming the structure of public banks,
strengthening financial oversight mechanisms, and
expanding financial inclusion.
METHODOLOGY
The research relies on a multi-method approach:
The research adopts a descriptive-analytical
approach, collecting quantitative data (such as
annual reports of the Central Bank and Iraqi
banks) and qualitative data (such as interviews
with economic experts, to analyze the temporal
impact of crises. The period covers 2005
–
2022,
covering critical phases in the Iraqi economy. The
case study approach was also used, focusing on
three banking institutions representing major
government banks (Rafidain and Rashid) and the
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Specialized Bank (TBI) to compare policy
differences and the impact of risks. Data sources
included bank financial reports, official statistics
from the Central Bank of Iraq, and reports from
international institutions such as the International
Monetary Fund.
Section One: Theoretical Framework for Research
Variables
First Requirement: (Crises: Concept, Stages,
Types)
The term "financial crisis" is one of the most
frequently used terms in economic literature,
given the seriousness of these crises on the
economic conditions of countries. Here, we will
discuss the concept of crisis in general and its
economic concept in particular. First: The General
Concept of Crisis
The issue of exposure to crises has become a
challenge facing all human systems in their various
political, economic, and social aspects. There is
some ambiguity and disagreement regarding the
definition of a crisis. This is due to the diversity of
fields and levels in which this phenomenon occurs.
A crisis is "an inability to make a decision, meaning
the inability to make a decision and the inability to
achieve the required level of balance between its
means and its goal within specific circumstantial
data" (1). Others define it as "a state of equilibrium
in society," meaning it represents a sudden,
unusual situation in the life of society, the
occurrence of which was not expected, leading to
harmful material and moral effects on both the
state and society for a temporary period" (2).
Second: The Stages of Crises. Researchers agree
that a crisis goes through several stages, namely
(3):
1- The Emergent Stage: This represents the
warning stage that precedes a crisis, which is
discovered based on the experience and awareness
of officials, planners, and decision-makers to take
the necessary measures to confront the next crisis.
2- The Growth Stage: When the crisis is fueled by
additional drivers, causes, and individuals, it
begins to expand and grow. At this stage, officials
must attract or neutralize the drivers and factors
of growth or create a conflict of interest between
the individuals driving it (4).
3-The Maturity Stage: Here, the crisis reaches its
peak and begins to inflict severe losses on the
organization and destroy the people and assets
around it. Controlling the crisis becomes difficult
unless the decision-maker undertakes a radical
confrontation with its causes and drivers.
4- The Decline Stage: This is the final stage, and the
crisis begins to end. When the crisis loses its causes
and individuals, it starts to recede. Officials should
not be optimistic, as the causes of the crisis may
begin to resurface. The organization must rebuild
itself and learn from its mistakes.
Third: Types of Crises.
Understanding a crisis and how to deal with it
depends on the degree of knowledge of its type and
nature. In this regard, different types of crises can
be distinguished as follows (5):
First: Material or Moral Crises:
a. Material crises: These are crises of an economic,
material, and quantitative nature, and they are
measurable. They can be studied and dealt with
materially, using tools appropriate to the nature of
the crisis. Examples include a sharp decline in
sales, the production of substandard goods, the
food crisis, the debt crisis, and the bank borrowing
crisis (6).
b. Morale crises: These are psychological, personal,
and intangible crises. Their dimensions cannot be
easily grasped, nor can they be seen or heard.
Rather, they can be felt. Examples include a crisis
of confidence, employee dissatisfaction and
discontent, and low morale.
Second: Minor and Acute Crises:
1
—
Minor crises: These crises have a mild impact
and are easy to address immediately. Examples
include limited internal rumors, a departmental
strike, or a production line breakdown.
2- Acute crises: These are crises characterized by
intensity, violence, and the subjugation of the
organization's
administrative
structure,
undermining its foundations. Examples include a
comprehensive strike by all employees of the
organization, demonstrations in all cities across
the country, an attack by foreign governments, or a
sudden withdrawal of deposits by depositors.
Third: Partial and General Crises:
Partial crises
: These crises affect only a part of the
system. The fear is that the crisis's continuation
may extend to other parts of the system. Examples
include the deterioration of work in a department
or the outbreak of an epidemic in a small city.
General crises
: These are crises that cover all
parts of the system, whether a company, an
organization, or a state. They affect all parties,
individuals, and products of the system. Examples
include a sharp decline in factory productivity.
Fourth: Single and Recurring Crises
1- Single crises are sudden, non-periodic, and non-
recurring. Their occurrence is difficult to predict,
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and their occurrence is usually triggered by factors
beyond one's control, such as earthquakes and
floods (7).
2- Recurring crises: These are crises characterized
by repetition and cyclicity, and they occur in
seasons or economic cycles that can be predicted.
Through study and research, it is possible to
determine when the crisis will occur and the
degree of its occurrence, and then it can be
controlled. These recurring crises occur due to
agricultural and natural seasons, such as summer
and winter. Economic seasons, such as boom and
bust, lead to the occurrence of the following crises,
for example, the crisis of the unavailability of the
workforce during harvest seasons, the lack of need
for workers in certain months periodically, a
severe recession every (10 years), and the frost
crisis that threatens crops. Second Requirement:
Performance Indicators of Financial Banks
(Definition, Components, Functions)
Financial banks, or banks, are financial institutions
that play a vital role in the economy by providing
various services, including accepting deposits,
extending loans, and facilitating other financial
transactions. Banks are among the economic
system's oldest and most influential financial
institutions.
First: The Concept of Financial Banks:
Banks are financial institutions that specialize in
providing various financial services, including
accepting deposits, extending loans, and providing
payment and transfer services. These institutions
contribute to accumulating savings and directing
them toward productive investments, thus
promoting economic growth.
Banks are financial institutions that aim to provide
financial services to individuals, companies, and
government institutions. They play a pivotal role in
the economy by managing funds, providing
liquidity, and facilitating financial transactions.
They are also known as financial institutions that
act as intermediaries between savers and
investors, accepting customer deposits and
providing loans and other financial services.
Second: Components of Banks:
1. Organizational Structure (8):
Senior Management
: Includes the General
Manager and the Board of Directors.
o Administrative Departments: The Accounting,
Human Resources, and Risk Management
Departments.
o Branches: The bank's offices are distributed to
provide services directly to customers (9).
2. Assets:
o Cash and funds in the Central Bank.
o Loans provided to customers.
o Investments and financial securities (10).
Liabilities:
Deposits of all types (current deposits, savings
deposits, and time deposits).
Financial obligations towards borrowers and
shareholders (11).
3. Technical Services ( ):
Computer systems and networks to facilitate
electronic transactions.
Banking applications and bank cards.
Third: The functions of financial banks
1. Accepting deposits: Providing various savings
tools such as current and savings accounts.
2. Providing loans: Granting loans to individuals
and companies to achieve investment and
consumer goals (12).
3. Providing payment methods:
Issuing credit and debit cards. Facilitating local and
international bank transfers.
4. Managing funds: Providing investment services
such as buying and selling stocks and bonds and
managing clients' assets and wealth.
5. Supporting the economy:
Financing development projects. Contributing to
the stability of the financial system.
6. Providing electronic banking services (13):
Internet banking services and smart applications.
Facilitating remote banking operations.
7. Managing foreign currencies:
Buying and selling currencies. Providing clients
with facilities for international transactions.
Third Requirement: Bank Financial Performance
Indicators (Indicators and Their Advantages)
Several indicators are used to evaluate bank
performance, the most prominent of which are:
Profitability
: Measured through indicators such
as return on assets (ROA) and return on equity
(ROE), which reflect the bank's efficiency in
generating profits (14).
Liquidity
: This indicator, measured by the ratio of
liquid assets to short-term liabilities, indicates a
bank's ability to meet its short-term financial
obligations (15).
Credit Quality
: Measured by the ratio of non-
performing loans to total loans, reflecting the loan
portfolio's quality and the bank's ability to manage
credit risk.
Operational Efficiency
: Measured by the ratio of
operating expenses to operating revenues, a lower
ratio indicates greater cost-management efficiency
(16).
Reasons for the Emergence of Bad Debts (17):
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1. Customer Financial Distress: Such as bankruptcy
or economic difficulties.
2. Negligence in Assessing Customer Repayment
Ability: Extending credit without a thorough
analysis of financial solvency.
3. Deception or fraud: Some customers may intend
to default (18).
4. Inadequate collateral: The absence of assets
guaranteeing the company's rights in the event of
default.
How to deal with bad debts in accounting:
1. Recording provisions: A provision for doubtful
debts is created based on a percentage of the total
receivables to cover debts likely to become bad.
2. Proving bad debts: When it is confirmed that the
debt has become uncollectible, the accounts
receivable are reduced, and the bad debt is
recorded as an expense:
3. Debit: Bad debt expense
4. Credit: Account receivable (or accounts
receivable)
5. Tax exemption: Bad debts can be deducted from
taxable income in some countries, provided certain
conditions are met.
Methods to reduce bad debts:
• Checking the financial solvency of customers
before granting credit.
• Establishing strict credit policies.
• Regularly monitoring debt collection.
• Using credit risk insurance.
Activating legal procedures to recover funds
from defaulting customers.
Third: Advantages of Financial Institutions
Banks offer numerous benefits to the economy and
individuals, including:
1- Pooling Savings: Banks collect savings from
individuals and businesses and direct them toward
investments, contributing to economic growth.
2- Providing Credit: Banks provide loans and credit
facilities that help individuals and businesses
finance their needs and achieve their financial
goals.
3- Facilitating Financial Transactions: Banks
provide payment and transfer services, facilitating
business operations and enhancing economic
efficiency.
4- Risk Management: Banks help customers
manage financial risks by offering products such as
insurance and financial derivatives.
The Third Section: Financial Crises in Iraq (2005-
2022)
Iraq has experienced numerous financial crises
that have significantly impacted its economic and
social stability over the decades. These crises are
due to internal and external factors, including wars
and political conflicts, fluctuations in oil prices, and
governmental instability. This research will
examine the most prominent financial crises Iraq
has experienced recently, analyzing their causes,
effects, and impact on the national economy.
1. The Post-2003 Financial Crisis (2003-2013)
After the fall of Saddam Hussein's regime in 2003,
Iraq entered a period of political and security
instability. This coincided with the near-total
collapse of the public and private sectors. Although
the new Iraqi government received international
support, several factors contributed to successive
financial crises:
• Government Corruption: The post
-2003 period
witnessed
increased
corruption
within
government
institutions,
leading
to
the
misappropriation of public funds and the failure to
distribute revenues to development projects.
• Military Expenditures: Since 2003, the Iraqi
government has spent huge sums on ensuring
internal and external security due to the increase
in terrorist attacks and armed conflicts, which has
significantly impacted the national budget.
• Fluctuating Oil Prices: Iraq relies primarily on oil
revenues, and during periods of low global oil
prices, the Iraqi economy suffered severely (19).
2. The 2014-2017 Crisis Due to ISIS
After ISIS overran several Iraqi cities in 2014, Iraq
entered a new financial crisis. The crisis was
characterized by the following (20):
• Total Destruction of Infr
astructure: ISIS's
occupation of major cities such as Mosul and Anbar
led to widespread destruction of infrastructure,
making reconstruction difficult and costly.
• Military Spending: The Iraqi government
allocated huge budgets for military spending to
combat ISIS, which created a huge financial
burden.
• Sharp Decline in Oil Revenues: During this period,
global oil prices were low, significantly increasing
Iraq's budget deficit.
• Internal Displacement: The war against ISIS
displaced more than 3 million people within Iraq,
placing an additional burden on the national
budget due to care and relief costs.
3. The Financial Crisis 2020 to Date (Impacts of the
COVID-19 Pandemic)
With the outbreak of the COVID-19 pandemic in
2020, Iraq was significantly affected by several
economic factors:
• Declining oil prices: Oil prices had fallen sharply
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due to the decline in global demand caused by the
pandemic, significantly impacting public revenues.
• Lockdown: Preventive measures to contain the
spread of the virus led to the closure of commercial
and craft activities, impacting the local economy
and raising unemployment rates.
4. Popular Protests: In late 2019 and early 2020,
Iraq witnessed widespread popular protests
against government corruption and poverty,
contributing to the worsening economic situation
(21).
5. The Current Financial Crisis (2024) By 2024,
Iraq continues to face significant financial
challenges due to several reasons, including:
• High public debt: Due to high government
spending on security and reconstruction, public
debt levels have risen.
• Persistent Corruption: Combating corruption
remains difficult, limiting the government's ability
to improve the economic situation.
• Heavy
dependence on oil: The oil sector is Iraq's
primary source of revenue, but global price
fluctuations significantly impact the state budget.
• Socio
-economic protests: As economic challenges
persist, Iraqi cities are witnessing demonstrations
demanding improved living conditions and an end
to government corruption.
Section Three: The Most Important Crises and
Their Impact on the Banking Sector:
Case Study No. (1): Rafidain Bank
Key Financial Indicators
Nonperforming Loans (NPLs): During the 2008
crisis, nonperforming loans increased by 25% due
to delays in loan repayments by government
contractors. By 2015 (22), nonperforming loans
had peaked at 32% due to the conflict with ISIS.
(23)
The liquidity coverage ratio (LCR) fell below the
regulatory threshold of 100% and reached a
critical level of 85% in 2014 (24) due to delayed
government deposits and declining oil revenues.
Profitability
: Operating profits declined by 15-
20% annually during the crisis years, reflecting
lower interest income on loans (25).
Key Crisis Events for the Bank
Post-2008 Crisis
: Global oil price shocks delayed
government-funded public infrastructure projects.
Rafidain Bank faced significant pressure to extend
loan repayment terms, exacerbating liquidity
problems (26).
Post-ISIS Recovery (2017-2020): Efforts to rebuild
areas liberated from ISIS increased demand for
bank financing. However, inadequate capital
reserves limited Rafidain Bank's ability to support
this recovery fully. (27)
What measures have been taken:
1. Restructuring existing loans to accommodate
longer repayment periods (28).
2. Seeking international assistance through
partnerships with the World Bank and the
International
Monetary
Fund
to
stabilize
operations. (29)
Case Study No. (2) Rafidain Bank
Key Financial Indicators:
According to data from the Central Bank of Iraq,
the ratio of non-performing loans to total loans in
the banking sector reached 16.2% in 2016, rising
to 21.0% in 2017, then declining to 18.5% in 2018,
and stabilizing at 18.8% in 2019 (30). These ratios
indicate ongoing challenges in managing credit
risk within Iraqi banks, including Rafidain and
Rafidain Banks. The high ratio of non-performing
loans negatively impacts banks' profitability and
increases liquidity risks. This high percentage may
be due to economic factors such as low oil prices,
security and political instability, and weak risk
management and internal control systems in some
banks (31).
Main Crisis Events Affecting the Bank:
During 2005-2022, Rashid Bank, as one of the
government banks in Iraq, faced significant
challenges due to the economic and political crises
that affected Iraq in general and the banking sector
in particular. The following are the most
prominent events and crises that affected Rashid
Bank during this period:
• Restructu
ring after 2005
General Situation
: Rashid Bank, like other
government
institutions,
faced
significant
challenges in restoring its activity after the events
of 2003 and the fall of the former regime. The crisis
led to the absence of a modern banking
infrastructure, instability in the security and
political situation, and weak customer confidence
in the banking sector (32).
• Expansion Amid Challenges (2008
-2014)
Weak banking systems and technology compared
to regional and international banks, increasing
non-performing loans due to weak credit
oversight, and unclear bankruptcy and debt
management laws. (33)
• The War on ISIS and the Economic Crisis (2014
-
2017)
A. ISIS's invasion of large parts of Iraq in 2014
directly impacted the economy.
B. The drop in oil prices in 2014 caused a severe
financial crisis that affected liquidity in banks,
including Rashid Bank.
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C. The percentage of non-performing loans
increased due to the difficult economic conditions
facing borrowers.
• Recovery Attempts (2018
-2019)
The government and the Central Bank of Iraq
initiated efforts to reform the banking sector,
including supporting state-owned banks and
implementing electronic banking systems to
improve performance and services. However, the
impact of the crisis remained a challenge resulting
from accumulated debt and weak foreign
investment in the banking sector (34).
• (2020
-2022): The COVID-19 Pandemic and the
Global Economic Crisis (35):
A. The outbreak of the COVID-19 pandemic
significantly impacted the Iraqi economy, leading
to an economic contraction and a significant
decline in oil revenues.
B. An increase in non-performing loan ratios due to
the default of individuals and companies (36).
C. A decrease in lending volume due to weak
liquidity.
C. A greater reliance on digital services due to the
pandemic.
This led the Central Bank of Iraq to adopt policies
to support liquidity and ensure the stability of the
financial system. Initiatives were launched to
support affected sectors, which may have been
implemented by Rasheed Bank as part of financing
programs.
Section Two: Financial Crises in Iraq (2005-2022)
Iraq has experienced numerous financial crises
that have significantly impacted its economic and
social stability over the decades. These crises are
due to a combination of internal and external
factors, including wars and political conflicts,
fluctuations in oil prices, and government
instability. This research will examine the most
prominent financial crises that Iraq has
experienced in modern history, analyzing their
causes, effects, and impact on the national
economy.
1- The Post-2003 Financial Crisis (2003-2013)
After the fall of Saddam Hussein's regime in 2003,
Iraq entered a period of political and security
instability. This coincided with a near-total
collapse of the public and private sectors. Although
the new Iraqi government received international
support, several factors contributed to successive
financial crises:
Government Corruption: The post-2003 period
witnessed an increase in corruption within
government
institutions,
leading
to
the
embezzlement of public funds and the failure to
distribute revenues to development projects.
Military Expenditures: Since 2003, the Iraqi
government has spent huge sums on ensuring
internal and external security as a result of the
increase in terrorist attacks and armed conflicts,
which has significantly impacted the national
budget.
Fluctuating oil prices: Iraq relies primarily on oil
revenues, and during periods of low global oil
prices, the Iraqi economy suffered severely (38).
2- The 2014-2017 crisis due to ISIS
After ISIS overran a number of Iraqi cities in 2014,
Iraq entered a new financial crisis. The crisis was
characterized by the following:
Mass
destruction
of
infrastructure:
ISIS's
occupation of major cities such as Mosul and Anbar
led to widespread destruction of infrastructure,
making reconstruction difficult and costly.
Military spending: The Iraqi government allocated
huge budgets for military spending to combat ISIS,
which created a huge financial burden.
Sharp decline in oil revenues: During this period,
global oil prices were low, significantly increasing
Iraq's budget deficit.
Internal Displacement: The war against ISIS
displaced more than 3 million people within Iraq,
placing an additional burden on the national
budget due to the costs of care and relief. (39)
3- The Financial Crisis of 2020 to Date (Impacts of
the Coronavirus Pandemic)
With the outbreak of the coronavirus pandemic in
2020, Iraq was significantly affected by several
economic factors:
• Declining oil prices: Oil prices had experienced a
sharp decline due to the decline in global demand
caused by the pandemic, significantly impacting
public revenues.
• General Lockdown: Preventive measures to
contain the spread of the virus led to the closure of
commercial and craft activities, impacting the local
economy and raising unemployment rates.
• Popular protests: In late 2019 and early 2020,
Iraq witnessed widespread popular protests
against government corruption and poverty, which
contributed to the worsening economic situation
(40).
• Financial crisis (2024). By 2024, Iraq continues
to face significant financial challenges due to a
number of reasons, including:
• High public debt: Due to high government
spending on security and reconstruction, public
debt levels have risen.
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• Persistent corruption: Combating corruption
remains difficult, limiting the government's ability
to improve the economic situation.
• Heavy
dependence on oil: The oil sector is Iraq's
primary source of revenue, but global price
fluctuations significantly impact the state budget.
• Socio
-economic protests: As economic challenges
persist, Iraqi cities are witnessing demonstrations
demanding improved living conditions and an end
to government corruption.
Section Three: The most important crises and their
impact on the banking sector:
Case Study 1: Rafidain Bank
: Key Financial Indicators
1
—
Non-Performing Loans (NPLs): During the
2008 crisis, NPLs increased by 25% due to loan
repayment delays by government contractors. By
2015, they had peaked at 32% due to the conflict
with ISIS.
The liquidity coverage ratio (LCR) fell below the
regulatory threshold of 100% and reached a
critical level of 85% in 2014 due to delayed
government deposits and declining oil revenues.
2- Profitability: Operating profits declined by 15-
20% annually during the crisis, reflecting lower
interest income on loans.
Key Crisis Events for the Bank
Post-2008 Crisis
: Global oil price shocks delayed
government-funded public infrastructure projects.
Rafidain Bank faced significant pressure to extend
loan repayment terms, exacerbating its liquidity
problems.
Post-ISIS Recovery (2017-2020): Efforts to rebuild
areas liberated from ISIS increased demand for
bank financing. However, inadequate capital
reserves limited Rafidain Bank's ability to support
this recovery fully.
What actions were taken?
Restructuring existing loans to accommodate
longer repayment periods.
Seeking
international
assistance
through
partnerships with the World Bank and the
International
Monetary
Fund
to
stabilize
operations.
Case Study Two: Trade Bank of Iraq (TBI)
Key Financial Indicators:
1- Foreign exchange reserves decreased by 40%
during the oil price collapse between 2014 and
2016, severely impacting the bank's ability to
finance
imports
and
international
trade
transactions.
2- Loan-to-deposit ratio: It rose to 120% during
the COVID-19 pandemic, indicating that the bank
was overleveraged relative to its deposits.
The capital adequacy ratio
decreased to 8% in
2016, barely meeting standards. International,
reflecting increasing financial pressures.
Main Crisis Events on the Bank
1- The collapse of oil prices in 2014: The bank's
dependence
on
financing
government
infrastructure projects led to cash flow problems
when public spending was cut.
2
—
The COVID-19 Pandemic: The decline in global
trade volumes led to a 25% decrease in net income
due to declining demand for the bank's trade
finance services.
Key Measures
1- Focus on expanding digital banking services to
attract individual customers.
2- Entering new markets by issuing letters of credit
to neighbouring countries such as Jordan and
Turkey to promote international trade.
Second Requirement: Analysis of Bank Indicators
During Crises
Table (1) shows Rafidain Bank's indicators during the financial and economic crises.
Ye
ar
Crisis Notes
Bank
Capital
Adequacy
Ratio
Return
On
Assets
(ROA)
Return
On
Equity
(ROE)
Liquidit
y Ratio
Bad
Debt
Ratio
2005
Beginning of
Restructuring After
2003
Rafidain
Bank
10
%
0.80
%
5
%
35
%
8
%
2008
Global Financial
Crisis
Rafidain
Bank
11
%
0.90
%
6
%
36
%
8
%
2010
Gradual Recovery
Rafidain
Bank
12
%
1.00
%
6
%
38
%
7
%
2014
Impact of Low Oil
Prices
Rafidain
Bank
13
%
1.10
%
7
%
39
%
7
%
Frontline Marketing, Management and Economics Journal
FRONTLINE JOURNALS
16
2015
Continuing
Economic Crisis
Rafidain
Bank
15
%
1.20
%
7
%
40
%
6
%
2020
Impact of the
COVID-19
Pandemic
Rafidain
Bank
16
%
1.20
%
7
%
40
%
6
%
2022
Relative Stability
Bank
16
%
Return on
Assets
(ROA)
Return on
Equity
(ROE)
40
%
6
%
Source: Based on annual economic reports, annual reports of the Iraq Stock Exchange (2005-2022).
Table (2) shows the indicators of rational banking during financial and economic crises.
Year
Crisis Notes
Bank
Capital
Adequacy
Ratio
Return
On
Assets
(ROA)
Return
On
Equity
(ROE)
Liquidity
Ratio
Bad
Debt
Ratio
2005
The
Beginning
of
Reorganization
Rashid
Bank
8
%
0.50
%
3
%
25
%
10
%
2008
The
Global
Financial Crisis
Rashid
Bank
9
%
0.60
%
4
%
27
%
9
%
2010
Gradual
Recovery
Rashid
Bank
10
%
1.00
%
5
%
30
%
8
%
2014
Impact
of
Low
Oil Prices
Rashid
Bank
11
%
1.10
%
6
%
31
%
7
%
2015
Continuing
Economic Crisis
Rashid
Bank
13
%
1.30
%
7
%
33
%
6
%
2020
Impact
of
the
Coronavirus
Pandemic
Bank
14
%
1.50
%
8
%
35
%
5
%
2022
Relative
Stability
Rashid
Bank
14
%
1.50
%
8
%
35
%
5
%
Source: Based on annual economic reports and annual reports of the Iraq Stock Exchange for the period (2005-
2022).
Table (3) shows private banks during the year (2022).
Year
Crisis
Notes
Bank
Capital
Adequacy
Ratio
Return
On
Assets
(ROA)
Return
On
Equity
(ROE)
Liquidity
Ratio
Bad
Debt
Ratio
2022
Relative
Stability
Commerci
al Bank of
Iraq
18
%
1.80
%
10
%
30
%
4
%
2022
Relative
Stability
Bank
of
Baghdad
15
%
1.60
%
9
%
38
%
5
%
2022
Relative
Stability
Internatio
nal
Developm
ent Bank
17
%
2.00
%
12
%
32
%
3
%
Source: Based on Central Bank data for various
years. Tables (1), (2), and (3) for Rafidain Bank,
Rafidain Bank, and other banks contain various
data on bank performance indicators in Iraq over
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FRONTLINE JOURNALS
17
different periods, such as capital adequacy ratio,
return on assets (ROA), return on equity (ROE),
liquidity ratio, and bad debt ratio. To analyze the
disparity in these ratios between banks, the
following factors can be considered:
1- Capital adequacy ratio: This is one of the most
important indicators of financial soundness for
identifying local banks' financial solvency and
ability to bear potential risks and adapt to financial
lending. The higher the capital, the lower the
likelihood of exposure to financial borrowing and,
consequently, the degree of financial solvency, and
vice versa. The table above shows that Rafidain
Bank and Rashid Bank show lower ratios than
private banks. This is due to flexibility in capital
management and their pursuit of profitability and
capital maximization compared to government
banks, which face broader challenges related to the
macroeconomic and political environment, in
addition to their heavy reliance on state support
and restrictions imposed by government policies.
We also note that the global financial crisis (2008)
had a limited effect on Iraqi banks due to weak
integration with the international financial system.
Still, it indirectly affected liquidity due to a decline
in foreign investment. While the two years (2014-
2015) witnessed the oil price crisis, it did not affect
the capital adequacy ratio, which increased from
10% in 2005 to 15% in 2015.
2- Liquidity ratio: Liquidity ratio indicates the
adequacy of banks' financial resources to manage
funds and meet their obligations on their due
dates. This helps maintain sufficient liquidity to
carry out operational activities and address
emergencies. The table shows an increase in the
liquidity ratio at Rasheed and Rafidain Banks, from
35% in 2005 to 40% in 2022. This is because
government banks maintain high levels to meet
customer requirements and service government
debt. The tables also show that the liquidity ratio
continued to rise to maintain its levels and meet
customer requirements. At the same time, it
declined in private banks during crises due to
attempts to reduce reserves and increase
investment. 3- Return on Assets (ROA): Returns
indicate improved bank profitability from
increased investments. Many factors have affected
this year, including those related to the country's
political situation and security developments. The
table shows a lower value (1.5%-1.20%). The
reason for this is lower profits due to their greater
reliance on government funding rather than
commercial investment. Private banks, on the
other hand, recorded the highest value (2.00%-
1.80%). This is due to efficient asset management
and allocation to achieve high returns.
4- Return on Equity (ROE): This is calculated by
dividing net income by equity (paid-in capital +
issued marks + retained earnings). A high rate of
this ratio is indicative of efficient management. The
table shows a decline in the average ratio in
government banks (7%-8%) due to a lack of focus
on high profitability. This indicator is higher in
private banks due to better capital utilization and
higher returns relative to equity. This indicator
experienced a decline during crises, such as those
from 2008 to 2014, due to decreased economic
activity.
However,
it
gradually
improved
afterwards as a result of corrective measures.
5- Bad Debt Ratio: Bad debts are amounts owed by
customers or debtors that become uncollectible
due to the customer's inability or refusal to pay.
These debts are considered losses for the company
and are classified as part of operating expenses in
the financial statements. The following table shows
the bad debts:
Financial crises and their impact
: In the early
years (2005-2008), banks experienced high bad
debt ratios (8%-10%) due to the post-2003
restructuring and the 2008 global financial crisis.
This ratio reflects weak lending mechanisms and
high risks.
Gradual recovery (2010): Bad debt ratios began to
decline gradually to 7%- 8% due to an improved
economic environment and the implementation of
stricter lending procedures.
Oil price decline crisis (2014): The ratio remained
relatively stable at 6%-7%, indicating that
government banks began to adapt to crises by
improving their lending policies.
Coronavirus pandemic (2020): Despite the impact
of the pandemic, banks maintained relatively low
bad debt ratios (5%-6%). This is due to enhanced
loan restructuring mechanisms and effective
oversight.
Relative Stability: (2022): This year, private banks
recorded lower bad debt ratios (3%-5%)
compared to government banks (6%). This
difference reflects private banks' proficiency in
risk management and creditworthiness analysis.
This analysis highlights the structural and
managerial differences between Iraqi banks.
Government policies and a focus on overall
Stability reduce profitability in government banks,
while private banks leverage their flexibility to
achieve higher financial performance.
Conclusions
Based on case studies and broader analysis, the
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FRONTLINE JOURNALS
18
following are key recommendations to enhance
the resilience and stability of Iraqi banks in the face
of financial crises:
1. Strengthen regulatory frameworks
• Iraqi banks should fully comply with
international regulatory standards, particularly
the international framework focusing on capital
adequacy, stress testing, and market liquidity risks.
• Action: The Central Bank of Iraq should impose
higher capital adequacy ratios and penalties for
non-compliance.
• Strengthen supervision: Enhance the supervisor
y
role of the Central Bank to monitor banks'
exposure to high-risk sectors, particularly oil-
related and government-related projects.
2. Diversify income sources
• Encourage non
-oil sectors: Encourage banks to
invest in industries less dependent on oil, such as
agriculture, renewable energy, manufacturing, and
technology.
• Action: Provide tax incentives and financial
support to banks that finance non-oil-related
projects.
• Expand retail banking services: Focus on
individual customers, small and medium-sized
enterprises, and microfinance to achieve a more
balanced portfolio.
• Action plan: Launch affordable credit products
and savings accounts for low- and middle-income
individuals.
3- Enhancing Risk Management Practices
• Advanced Risk Assessment Tools: In
vest in data
analytics
tools
and
artificial
intelligence
technologies to assess creditworthiness and detect
early signs of potential default.
• Implementation: Partner with international risk
management firms to train staff and implement
systems.
• Stress
Testing: Require banks to conduct regular
stress tests to assess their resilience under adverse
scenarios, such as a sharp drop in oil prices or
political instability.
• Action Plan: Establish crisis simulation exercises
at least annually under the supervision of the
Central Bank of Iraq.
4- Building Capital and Liquidity Buffer
• Increase Capital Buffering: Impose higher
minimum capital adequacy ratios (e.g., 12-15%) to
protect against losses during crises.
• Implementation: Set phased deadlines for
achieving these targets, with penalties for delays.
• Liquidity Support Mechanism: Establish a central
liquidity facility within the Central Bank to provide
short-term funding to banks during liquidity
crises.
• Action Plan: Allocate a portion of foreign
exchange reserves.
5- Promoting Financial Inclusion
• Developing Rural Banking Services: Expanding
banking services in underserved and rural areas to
mobilize untapped deposits and diversify income
sources.
• Implementation: Launching mobile banking and
agent banking models to reach populations in
remote areas.
Recommendations
1- Reforming the Iraqi Banking System
The Iraqi government must begin reforming the
national banking system by developing new rules
and laws that support financial transparency and
enhance banks' ability to operate in an unstable
economic environment. This requires updating
technical systems and activating internal controls
to combat corruption.
2- Promoting Economic Diversification
Iraq must work to reduce its dependence on oil as
a primary source of revenue and expand its
economic base by strengthening non-oil sectors
such as industry, agriculture, and tourism. This
diversification will mitigate economic crises that
depend on oil price fluctuations.
3- Improving Credit Availability
Iraqi banks must improve their lending capacity by
building larger liquidity reserves and enhancing
risk management practices. In addition, strategies
should be developed to encourage lending to small
and medium-sized enterprises (SMEs), which can
be Iraq's primary engine of economic growth.
4- Enhancing Security and Stability in the Banking
Sector
Providing a safe and stable environment for banks
in Iraq is essential. The government must make
significant efforts to improve the security situation
in the country, especially in conflict-affected areas.
Ensuring the security of banking facilities and
enhancing the protection of cash assets is vital to
restoring confidence in the financial system.
5- Developing the Digital Banking System
Given the global shift toward digitalization, Iraq
must improve the digital infrastructure in the
banking sector. This will contribute to accelerating
financial transactions, reducing banks' operating
costs, and improving access to financial services in
rural and remote areas.
Rebuilding Trust in the Financial System
: Banks
and the government must work together to build
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FRONTLINE JOURNALS
19
trust in the banking system. This requires
enforcing consumer protection laws, ensuring
transparency
in
banking
operations,
and
implementing financial education programs for
citizens to educate them about banking services
and their importance.
Combating Corruption
: The Iraqi government
must implement serious anti-corruption reforms
and develop transparent oversight mechanisms
within government and banking institutions.
Promoting good governance and ensuring fair
financial transactions will increase banks'
effectiveness and contribute to improving the
stability of the Iraqi economy.
CONCLUSION
Iraqi banks have been severely affected by various
financial crises, as corruption, security instability,
and economic fluctuations have weakened their
ability to respond to emergencies. However,
implementing radical reforms to the banking
system, improving economic diversification, and
enhancing security stability can help improve
banking performance and the sustainability of the
Iraqi economy in the future.
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