Shafaq News- Baghdad

Government lending programs remained suspended on Thursday as Iraq’s state-owned banks —most notably Rafidain Bank and Rasheed Bank —continued to halt advances and loans due to declining liquidity and the absence of clear credit planning, a well-informed source told Shafaq News.

The source said the banks’ cash holdings have dropped sharply following a period when liquidity was sufficient to support citizen-focused lending, prompting concerns over how previously available funds were managed.

Operational weaknesses have compounded the problem, the source added, pointing to gaps in strategic and credit planning, slow adoption of modern banking technologies, and continued reliance on paper-based systems. These factors “have undermined efficiency and left state lenders struggling to keep pace with broader developments in the banking sector.”

The downturn has also reduced revenues and weakened inflows to the state treasury, increasing pressure on oversight bodies and parliament to review the performance of government-owned banks, according to the source.

“Administrative reform is now seen as unavoidable,” the source said, citing the need to appoint specialized professionals to senior management positions to strengthen governance and restore the banks’ economic role. The concerns extend to accountability for mismanagement, suspected waste of public funds, and favoritism in lending, as well as legal scrutiny of overseas branches that face possible closure due to poor administration.

The lending freeze comes amid deeper structural imbalances in Iraq’s banking system. Economists and financial experts told Shafaq News that despite growth in the number and capital of private banks, credit expansion remains limited, while state-owned banks continue to dominate deposits and liquidity flows. They attributed this concentration to long-standing weaknesses in financial intermediation, governance, and public trust, noting that higher capital levels and a larger banking sector have yet to translate into broader lending to the real economy —placing additional strain on state lenders already grappling with liquidity shortages.

Read more: Iraq’s private banks: Capital Growth and the structural credit gap