Iraqi Banking Sector and Financial Infrastructure Overview

Executive Summary
One of the most important elements of a modern economy is a fully-functioning and robust financial sector. In terms of banking services and technology, Iraq is getting close to keeping up with global trends.

Nevertheless, some aspects must be addressed. Iraqis are still dependent on cash payments, and according to the World Bank, a mere 23% of them owned a bank account in 2017. Issues such as the lack of confidence in the banking sector and inadequate knowledge of cashless-payment methods have slowed down financial progress.

In this report, we dive deep into the financial sector in Iraq, covering Iraqi banks, government structure and spending, electronic and cashless payments, and recent developments in the Iraqi financial scene, as well as the main issues noted.

This report’s key findings and discussion points are as follows:

• The Iraqi Banking System: Iraq has 74 banks with 904 branches spread out across the country, mainly concentrated in Baghdad and Basra. These banks are divided into 7 state-owned banks (SOB), 53 private sector-owned banks (PSOB), and 14 branches of international banks.

• Elevated Numbers of Bank Accounts: The number of bank accounts has expanded, which may be attributed to the implemented efforts to promote financial inclusion and the introduction of electronic banking. Specifically, savings accounts have experienced exponential growth throughout the years, culminating in a 517% increase from 2017 to 2021.

• Public Budget Expenditure: The Council of Ministers received 6.334% of the total budget allocated to major governmental institutions. The public budget is unbalanced across the Iraqi ministries, as the Ministry of Finance and the Ministry of Interior receive significantly higher allocations when compared to what is allocated to the Ministries of Agriculture, Transportation, and Water Resources combined.

• A Surge in Digital Payment: With the CBI’s authorization of mobile wallets such as ZainCash and AsiaHawala in 2016, as well as the initiation of the Salary Domiciliation Project, the number of issued electronic cards has grown exponentially since 2017, with over 16.2 million cards issued by the end of 2021.

• The Iraqi Dinar Devaluation: In 2021, the Iraqi government was compelled to reduce the Iraqi dinar’s value against the US dollar from 1,182 IQD to 1,470 IQD in an attempt to fix its budget inflation rapidly. This has allowed the government to pay wages and pensions while increasing the competitiveness of the domestic product against imports. It did, however, result in an increase in the cost of living.

• Salary Domiciliation Project: In an attempt to promote cashless transactions and digital transformation, the government started to pay state employees’ salaries using cards issued by Iraqi banks; the project was launched in February 2017. Currently, 36 banks are participating in this initiative. However, user behavior has not shifted significantly as most users visit points of cash (POC) on a monthly basis to withdraw their paychecks.

• Investments Led by the Central Bank of Iraq: In 2021, the CBI allocated around 42 trillion IQD towards the development of mainly the industrial and transportation sectors. While in comparison, the education and agricultural sectors received the least amount of the investment budget.

• Banking Sector’s Major Issues: There are numerous issues to be addressed in the banking sector, some of which are technical, such as the inadequate infrastructure for electronic payments, and others related to the professionalism and reputation of the sector, as a lack of public confidence prevents many Iraqis from securing their assets within banks.

• Developments and Opportunities: Several measures are being implemented to improve the banking sector’s contribution to the economy, including the CBI’s sponsorship of renewable energy power-producing plants, its three-trillion-dinar housing finance package, and the One Trillion Dinar initiative, among others. Financial inclusion and electronic banking are also being encouraged with the Salary Domiciliation Project and the surge in electronic payment service providers. At the same time, the market still has an opportunity for expansion, and this may be accomplished through the supply of services that are both convenient, secure, and enticing for the average Iraqi.