BY:Shatha kalel
The banking sector remains the backbone of Iraq’s financial system, primarily focused on attracting deposits and extending credit. Traditionally, Iraqi banks have relied heavily on private sector deposits to maintain liquidity and facilitate lending. However, 2025 marked a troubling shift, with private sector deposits declining by 7% compared to 2024. This erosion of confidence in banks not only weakens their ability to fund development projects but also signals broader instability in the financial system.
While banking is generally considered a low-risk sector compared to the stock market, its profitability is limited. In Iraq, this conservative model has been further constrained by regulatory inefficiencies, limited credit penetration, and public mistrust. Strengthening governance, introducing digital banking solutions, and expanding financial inclusion could help rebuild trust and stimulate deposits. By doing so, banks would be better positioned to channel savings into productive investments, laying the groundwork for sustainable economic growth.
The State of the Iraq Stock Exchange
In contrast to the banking sector, the Iraq Stock Exchange (ISX) offers higher risk but greater potential for returns. Unfortunately, the ISX has faced significant setbacks. In the first half of 2025, monthly trading values fell by 38%, dropping from an average of 53 billion dinars in early 2024 to only 32 billion dinars. The situation worsened in June 2025, when trading volumes hit a two-year low of just 22 billion dinars.
One of the most pressing issues is market concentration: only five companies out of 104 listed account for more than 85% of total trading volume. This lack of diversification not only limits opportunities for investors but also undermines confidence in the market’s fairness and stability. The withdrawal of foreign investors—once considered essential to revitalizing the ISX—further reflects a crisis of trust and highlights the need for reform.
Challenges and Opportunities
Both the banking and stock market sectors are struggling with declining participation and credibility. This contraction reflects a broader loss of confidence in Iraq’s financial institutions. Without urgent intervention, these sectors will remain underutilized, preventing them from contributing meaningfully to national development.
Yet, these challenges also present opportunities. A comprehensive regulatory review is essential—one that strengthens compliance, enforces transparency, and enhances investor protection. For the stock exchange, reforms should also include marketing strategies to boost trading volume, encourage more companies from diverse sectors to participate, and attract new listings. For the banking sector, modernizing operations, improving risk management, and leveraging technology can expand access to finance and rebuild public trust.
Toward an Integrated Economy
The integration of Iraq’s banking and financial sectors could be a catalyst for economic transformation. Banks can serve as stable institutions for mobilizing savings, while the stock market can channel investment into growth sectors with higher returns. If managed together under a coherent policy framework, these two sectors can complement each other: banks providing security and liquidity, and the ISX offering innovation and capital expansion.
By balancing risk and return across both sectors, Iraq has the potential to create an integrated economy that encourages domestic participation, attracts foreign investment, and supports long-term economic resilience.
Economic Studies Unit / North America Office
Al-Rabetat Center for Research and Strategic Studies