Performance evaluation and proposals to enhance the Iraqi banking sector

The article addresses the subject through four topics: the first topic offers an empirical examination of the performance of the banking sector during the period 2010–15. It also diagnoses the sector’s weaknesses and attributes such weaknesses to their inherited causes, be it legal, environmental, managerial or regulatory issues of the banking industry. The analysis paves the way to suggest required reforms and to answer the question of whether the sector, in its present state, is capable of leading or at least contributing substantially to the economic development of Iraq. The period examined is believed to fairly represent the sector’s performance in general since there is no reason to suggest that previous periods were any different. The second topic focuses on the reforms required to: enhance the sector’s contribution to GDP; and enable it to become a key player in the rebuilding of Iraq through making more loans and credits available for the private sector. Reform must be professional, profound and comprehensive and should be achieved in a manner conducive to major structural changes. Reform should address several issues such as availability of fund, equal treatment for both government-owned and privately owned banks and more effective supervision by the Central Bank of Iraq (CBI) including adherence to the Basel Accords and other international rules and standards including, but not limited to, liquidity ratios, stress tests, capital adequacy ratios, risk analysis and risk mitigation, and adequate governance rules. The third topic will shed light on: the environment under which the Iraqi banking industry operates, highlighting the limitations and obstacles that impede the sector’s growth including the judicial system and the state of the prevailing over-banking; the investment environment and whether it is attractive for the business community to invest and do business in Iraq. Finally, the CBI’s dollar window impact on the banking industry will also be examined.