A Comprehensive Reform Project for the Private Banking Sector

Baghdad, Iraq, April 7, 2025 – With the full support of the government and in cooperation with Oliver Wyman consulting company, the Central Bank of Iraq (CBI) today unveiled reform plans aimed at modernizing the Iraqi private banking sector and building a robust, modern, and flexible banking sector that drives economic growth, the enhances financial inclusion, in addition to generates attractive and sustainable returns for shareholders. This plan is the result of joint efforts of the CBI, the government, and the private banking sector, in cooperation with Oliver Wyman. Its success depends on the active participation and cooperation of all concerned parties. The CBI and the government will lead projects aimed at modernizing the sector and meeting the evolving needs of a rapidly growing economy. These projects focus on three objectives:

 

First: Strengthening and deepening widely the financial inclusion in Iraq.

 

Second: Raising the efficiency and productivity of the private banking sector.

 

Third: Creating a fair and healthy competitive environment in the market while improving the sector's flexibility and ability to withstand risks.

This project will contribute to enhancing the protection of depositors and creditors, along with financial education campaigns to restore confidence in dealing with banks. Financial inclusion will also be expanded through the establishment and effective implementation of legal and regulatory frameworks. For the purpose of enhancing the access to services, payment systems will be modernized to facilitate efficient and reliable transactions for both businesses and individuals, in addition to financial infrastructure will also be expanded, including an increased network of branches and ATMs. As well as compliance procedures of anti-money laundering and countering the financing of terrorism (AML/CFT) will also be simplified and assessed through a digital identity system.

 

Key pillars of banking standards reform:

A prerequisite for the success of the plans is demanding all banks comply with a set of standards and to actively participate in the sector's transformation process. Banks must move toward business models that represent an additional value to the Iraqi economy, while providing superior customer service, ensuring its financial stability, and combating fraud and financial crime.

 

The key banking standards to be implemented are divided into four main categories:

1. Ownership Structure and Governance:

• Setting maximum ownership limits to prevent excessive control (concentration) by any single entity or related parties.
• Ensuring competent and independent boards of directors, with suitability tests for all key leadership positions.
• Conducting intensified due diligence on all major shareholders.

2. Business Model Sustainability:

• Requiring banks to adopt sustainable and practical business models by submitting consistent detailed business plans, strategic plans, financial projections, organizational structure, technology implementation plans, and operational management.
• Ensuring that key services and products are aligned with market needs to support the Iraqi economy and citizens.

3. Financial Metrics:

• Maintaining the capital adequacy and liquidity ratios in line with international best practices to ensure banks' resilience in the face of financial crises.

4. Risk and Regulatory Compliance:

• Keeping pace with global best practices in compliance, including comprehensive measures to combat money laundering and terrorist financing, to ensure the sector is protected from financial crimes.

• Enhancing transparency in reporting and audits by accredited auditors to reduce conflicts of interest, including related party transactions.

The Reform Process:

The reform process will be a multi-stage journey. During this process, private banks will be assessed for compliance with the required standards at various stages of the reform process. The first assessment cycle is expected to begin in the first quarter of 2026.

 

Next Steps:

Over the coming months, CBI will share detailed criteria and timelines with the private banking sector through official circulars for implementing the reform process. It will also work to activate support channels and hold technical assistance workshops to ensure readiness before the assessment process begins. All licensed private banks will be asked to formally confirm their participation in the reform process. CBI is fully committed to achieving this transformation by working closely with all relevant stakeholders to pave the way for a strong and inclusive financial system.