Iraqi Central Bank Denies Bank Insolvency

The Iraqi Central Bank confirmed that imposing supervisory or guardianship committees on any bank is permissible but does not imply its insolvency; rather, it represents a precautionary regulatory measure aimed at ensuring the bank's safety, operational stability, and protecting depositors' rights.

The central bank clarified in a statement that these measures fall within its legal authority and its role in safeguarding the financial system and ensuring the banking sector's safety, emphasizing the application of international banking standards to guarantee banks' compliance and the continued provision of financial services without compromising customers' rights.

The governor attributed the increase in the amount of money held outside banks to a lack of confidence among a segment of citizens in the banking system, explaining that part of this money represents savings of individuals and traders kept at home or with money changers, in addition to the existence of informal lending activities.

Part of this crisis can be traced back to historical accumulations dating back to the 1990s, when international sanctions isolated Iraq financially, before banks were subjected to widespread looting following the U.S. invasion in 2003, events that contributed to entrenched fears among some Iraqis about keeping their savings in banks.

The governor also pointed to other challenges in restoring confidence, including restrictions imposed on the dealings of several Iraqi banks with the dollar, which reduced the number of banks capable of providing foreign transfer services to traders and individuals.

He also considered that profits derived from the spread between the official and parallel exchange rates do not provide sufficient incentive for some banks to expand lending, which in turn limits their ability to offer more attractive returns to attract citizens' savings.