Iraq plans merger of Rafidain and Rasheed banks
Shafaq News- Baghdad (Updated at 21:17)
Iraq's Finance Ministry intends to merge Rafidain Bank with Rasheed Bank and the Cooperative Agricultural Bank with the Industrial Bank, a government source told Shafaq News on Saturday.
The plan forms part of a wider financial, administrative, and technical restructuring of the state banking sector, according to the same source.
The proposal extends beyond consolidating management structures. It covers the restructuring of assets, liabilities, and staffing; the modernization of banking systems and electronic infrastructure; and the redistribution of branches and administrative powers in line with international banking standards, the source said. Several other state banks are also slated for reorganization and merger into larger entities.
Finance Minister Falih Al-Sari discussed the file at length with Prime Minister Ali Al-Zaidi, who set an initial ceiling of up to two years for completing the mergers and the restructuring, the source added. That period could be shortened to one year if legal and technical requirements are met.
"Restructuring the country's largest banks would strengthen the banking system's capacity to manage transfers, cash circulation, and trade finance, help regulate the dollar market and narrow the gap between the official and parallel exchange rates, and support monetary stability and economic activity," the government source said.
Read more: Debt without contracts: Iraq's shadow credit market
Market Weight Of The Two Banks
Rafidain and Rasheed dominate state banking in Iraq. Central Bank of Iraq data show the two institutions hold roughly 42 percent of the banking sector's assets and 56 percent of total deposits.
Both banks carry a financial legacy dating to the period after 2003. A World Bank report put Rafidain's recorded external liabilities at about 17.75 billion dollars, based on 2012 figures, and Rasheed's at 1.13 billion dollars. Rafidain announced on July 30, 2025 that it had settled 87 percent of its foreign debt file through negotiated settlements with Dutch and French creditor companies, concluded under Council of Ministers Resolution No. 403 of 2025, which closed three Dutch lawsuits with a concession rate above 90 percent in the bank's favor, according to a statement carried by the Iraqi News Agency. The bank said it was working to close the remaining portion of the file through final settlements.
Two Years Of Stalled Restructuring
The merger has been under study since the previous government. On January 2, 2024, the Council of Ministers, then chaired by Prime Minister Mohammed Shia Al-Sudani, approved direct contracting with Ernst & Young (EY) to prepare a study and roadmap for restructuring Rafidain and Rasheed within six months, alongside a separate study on merging the Industrial, Real Estate, and Agricultural banks into a single institution.
EY presented recommendations in October 2024 covering Rafidain's legal status, capital structure, and strategy. The six-month deadline passed without a merger, and the file remained at the stage of reviewing recommendations and implementation steps into early 2026.
The most recent step came on April 14, 2026, when the Council of Ministers, in a session chaired by Al-Sudani before Al-Zaidi took office in May, authorized Rasheed Bank to contract EY for financial and banking audit and oversight work supporting implementation of the restructuring plans for both banks.
Earlier efforts also fell short of consolidation. The Central Bank and the Finance Ministry signed a memorandum to restructure the two banks operationally and financially, followed by a World Bank-supported reform program covering organizational structures, auditing, risk management, compliance, and accounting systems. Those measures did not produce a merger or convert the banks into institutions operating fully under a modern commercial banking model.
Dollar Access And US Scrutiny
The Central Bank ended the external transfers platform at the start of 2025 and moved execution of transfers to Iraqi banks through their accounts at international correspondent banks, tying each bank's ability to handle dollars to its compliance standards, its vetting of beneficiaries and sources of funds, and its relationships with global financial institutions.
Iraq's banking sector has faced years of US scrutiny over money laundering, dollar smuggling, and the flow of hard currency to Iran or to entities under sanctions. Eight Iraqi banks were barred from dollar transactions in February 2024, and the restrictions were extended to five additional banks and three electronic payment companies in February 2025, following meetings between the Central Bank of Iraq, the US Treasury Department, and the Federal Reserve. Such restrictions differ from direct US sanctions: banks cut off from the dollar may continue operating in dinars or other currencies, but face substantial difficulty executing transfers and financing foreign trade.
The Treasury said in September 2024 that Iraq had made significant progress in reforming its banking sector and widening its links to the international financial system, while continuing to press for tighter controls on illicit finance, governance, compliance, and counter-terrorist financing. Pressure increased during 2026 as Washington expanded sanctions on Iraqi networks and individuals it accused of using the oil and business sectors to fund Iran and affiliated factions, with the Treasury warning it could impose secondary sanctions on foreign financial institutions that facilitate prohibited Iranian activity.
The Eco Iraq Observatory said 81 banks and representative offices operate in Iraq, among the highest totals in the Middle East, and noted that banking services remain below expectations and that the country still lacks fully integrated digital banks.
Read more: Iraq’s private banks: Capital Growth and the credit gap
