Private banks in Iraq struggle with liquidity shortages

Shafaq News- Baghdad

Liquidity shortages at several Iraqi private banks have weakened their ability to meet domestic and international obligations, as well as requirements set by the Central Bank of Iraq (CBI), a banking source told Shafaq News on Thursday.

The situation could lead to mergers among some banks, noting that consolidation also aligns with banking sector reform efforts and international standards, the source said.

Mergers involving troubled banks or those facing liquidity shortages do not necessarily mean depositors will lose their money, as financial obligations remain in place. However, recovering deposits may not be as quick or straightforward as customers expect.

Addressing the liquidity shortage will require restructuring the banking sector, strengthening confidence in banks, and improving their ability to comply with regulatory and financial requirements, according to the source.

Banking sources also told Shafaq News earlier today that banks have begun implementing urgent compliance measures required to lift restrictions on several lenders. The measures include stronger anti-money laundering and counter-terrorist financing controls, tighter governance, closer monitoring of US dollar transactions, and steps to curb smuggling and illicit transfers. Employees at several banks said management had intensified the process, with some staff working up to 12 hours a day amid mounting pressure to meet the CBI of Iraq's deadlines.

In April, the CBI directed several lenders to implement stricter compliance measures, as part of efforts to lift restrictions on affected banks and restore their access to international banking services.

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