Ali Zuweid's Political Programme · Proposed legislation · Economy, Finance, Investment and Employment
Banking Sector and State-Owned Banks Reform Law
A legislative framework preserving Central Bank independence and the Banking Law while adding the mechanisms Iraq needs for effective restructuring of state-owned banks: asset review, non-performing loan treatment, conditional recapitalisation, legal transfer of assets and liabilities, professional governance, fair banking competition, digitalisation and stronger depositor protection.
Executive Summary
Through 2026, Iraq's banking sector rests on Central Bank Law No. (56) of 2004, as amended, Banking Law No. (94) of 2004, Islamic Banking Law No. (43) of 2015, and evolving supervisory rules issued by the Central Bank. The legislative need is therefore not to write a parallel banking law or remove Central Bank powers, but to address the legally weaker link: how to restructure state-owned banks when their losses, legacy assets, sovereign functions, employees and government accounts are intertwined in ways that ordinary supervisory tools cannot address alone.
Since 2025–2026, the Central Bank itself has been implementing a private-bank reform programme with three paths: continuation after meeting requirements, merger, or market exit. In February 2026, it announced that all covered banks had submitted their documents and selected their paths. In July 2026, it then linked the reintegration of several banks into international banking channels to progress in compliance and governance. The proposed law therefore does not create a parallel private-bank programme; it leaves relicensing and supervision to the Central Bank and adds supporting provisions on ownership, competition and infrastructure.
For state-owned banks, the Central Bank's official website shows the continuing presence of a group led by Rafidain Bank, Rasheed Bank, the Trade Bank of Iraq and specialised banks. In 2024, the Ministry of Justice documented an amendment to Rafidain Bank's founding statement as a public company. The International Monetary Fund's 2025 assessment described the largest state banks as suffering from distressed legacy assets, capital shortfalls and weaknesses in governance, accounting and risk management, with a need for a clearer plan for non-performing loans, recapitalisation sources and transfers of assets and liabilities.
The proposal does not enshrine the name of a new entity or predetermine a particular merger, although the IMF report referred to a government plan involving a new entity, asset transfers and consideration of merging Rasheed with Rafidain. The implementation structure may change after asset quality reviews and stress tests, while the law must remain suitable for every scenario. It therefore gives the government and Central Bank legal tools for transfer, merger, separation, establishment and liquidation, requiring independent assessment and a least-cost test before decisions are made.
To prevent restructuring from becoming an accounting exercise, the proposal requires a comprehensive asset quality review, loss recognition, settlement of legacy claims and suspense accounts, collateral valuation and then calculation of the true capital gap. The Treasury shall not inject funds before these steps. A temporary asset management company may also be established if it demonstrably improves recovery, while transferring loans at nominal value to conceal losses is prohibited.
Governance is the second pillar. The Ministry of Finance remains the owner where the state so decides, but may not intervene in an individual loan, customer or pricing decision. Boards are reconstituted under banking fitness and propriety requirements; chairmanship is separated from executive management; and risk, audit, compliance and technology committees are strengthened. In return, a state bank is subject to the same supervisory requirements and receives no exemption merely because it is publicly owned.
For depositor protection, the proposal builds on the existing deposit insurance company instead of establishing a parallel fund. In September 2026, the Central Bank confirmed that all licensed banks participated in it. The law proposes faster compensation, prefunding and better data, while leaving conversion of the company into a specialised statutory institution to a separate assessment rather than assuming that a change in institutional form alone improves protection.
Existing legal framework
Banking Law No. (94) of 2004 remains the primary law for licensing, capital, supervision, credit restrictions and bank intervention. Alongside it, the Central Bank lists Central Bank Law No. (56) of 2004, as amended, Islamic Banking Law No. (43) of 2015, and Anti-Money Laundering and Counter-Terrorist Financing Law No. (39) of 2015. The proposal therefore repeats these rules only insofar as necessary to integrate restructuring with them.
State banks were not all established under the same legal instrument. The Central Bank's official website shows their differing founding instruments and legal forms, making a special reform law more practical than attempting to amend every law or founding statement before restructuring begins.
As the Central Bank is the regulator and supervisor, the proposal creates no body above it. The proposed transitional mechanism within the Ministry of Finance handles ownership rights, public costs and asset transfers. Bank soundness, solvency, licensing and early intervention remain Central Bank responsibilities.
Reform status in 2026
Central Bank statements show that private-bank reform has become an operational process with criteria, paths and guidance for merger, continuation and exit. During 2026, the Bank also issued updated risk management and compliance rules, meaning legislative modernisation should complement this process rather than restart it.
For the state sector, the IMF recommended in 2025 that state-bank restructuring be completed and non-performing loans, capital shortfalls, governance and digital infrastructure addressed. It also identified a need for greater clarity on asset and liability transfers and recapitalisation sources, matters addressed directly by this proposal.
Legislative design
The proposed law is a special reform law, not a replacement banking law. It combines tools for state-bank restructuring, ownership and governance rules to prevent imbalances returning after recapitalisation, and supporting provisions on competition, deposit insurance, credit, digitalisation and consumer protection.
It adopts the principle of losses first, then recapitalisation: old uncollectible loans and unreliable accounts and claims must be recognised before new capital is injected; otherwise recapitalisation becomes merely a figure concealing existing losses.
Draft Banking Sector and State-Owned Banks Reform Law
Chapter One — General Provisions
Article 1 — Title
This Law shall be called the Banking Sector and State-Owned Banks Reform Law.
Article 2 — Objectives
This Law aims to build a safe, competitive banking sector capable of financing the economy; reform state-owned banks and address distressed assets and capital shortfalls; ensure equivalent banking supervision for all banks; strengthen governance, accounting, digitalisation and cybersecurity; and improve depositor protection, credit, competition and international banking relationships.
Article 3 — Scope of Application
This Law applies to state-owned or state-controlled banks and their restructuring procedures. General sector reform provisions apply to all licensed banks insofar as they do not conflict with the Banking Law, Islamic Banking Law, Central Bank Law or special laws.
Article 4 — Relationship with existing laws
This Law does not repeal Central Bank of Iraq Law No. (56) of 2004, as amended, Banking Law No. (94) of 2004 or Islamic Banking Law No. (43) of 2015. It is a special law governing state-bank restructuring, transfer of assets and liabilities, and governance of state ownership in those banks.
Article 5 — Central Bank independence
No provision of this Law shall be interpreted as diminishing the Central Bank of Iraq's independence or powers over licensing, supervision, inspection, early intervention, conservatorship, licence revocation, liquidation, monetary policy or payment systems.
Article 6 — Definitions
“State-owned bank” means any bank directly or indirectly controlled by the state; “reform plan” means the approved plan addressing capital, assets, governance and the operating model; “distressed assets” means loans and claims whose credit quality has deteriorated under supervisory rules; “asset management company” means a temporary entity established to manage specified assets transferred from a bank undergoing restructuring; “bridge bank” means a temporary banking entity established by a legal decision to transfer critical functions where needed; “beneficial owner” means the natural person ultimately owning or controlling the bank or shareholder; and “solvency” means capital and liquidity adequacy and the ability to continue operating under Central Bank requirements.
Article 7 — General principles
Reform shall rest on depositor protection and financial stability, avoiding preventable Treasury losses, equal supervision of state and private banks, separation of state ownership from banking supervision, transparency, accountability, non-discrimination and continuity of critical banking functions.
Article 8 — Priority of financial stability
Where a shareholder's or bank management's interests conflict with depositor protection or financial-system stability, priority shall be given to the public objectives prescribed by the Central Bank Law and Banking Law, with due regard to legal rights and fair procedures.
Chapter Two — Institutional framework for reform
Article 9 — State Bank Reform Council
A State Bank Reform Council shall be formed under the chairmanship of the Minister of Finance, with representatives of the General Secretariat of the Council of Ministers and Ministry of Planning, the head of the State Ownership Unit, and a Central Bank representative as an observer independent of ownership decisions. The Board of Supreme Audit and other bodies may be invited.
Article 10 — Separation of ownership and supervision
The Central Bank representative shall not participate in state ownership decisions, determining an asset's sale price or appointing a board. The representative's role shall be confined to explaining supervisory and financial stability requirements.
Article 11 — Functions of the Reform Council
The Council shall approve restructuring plans and propose to the Council of Ministers the merger or conversion of state banks, establishment of a new entity, or transfer of assets and liabilities. It shall approve workforce, capital and governance plans within legal limits.
Article 12 — Reform Implementation Unit
A temporary executive unit shall be established within the Ministry of Finance for five years, extendable by two years by Council of Ministers decision. It shall coordinate data, valuations and asset transfers and monitor plans without conducting banking activities.
Article 13 — Joint team with the Central Bank
A standing data-sharing protocol shall be established between the Ministry of Finance and Central Bank on capital, asset quality, liquidity and risks, protecting banking confidentiality and independent supervisory decisions.
Article 14 — Role of the Board of Supreme Audit
The Federal Board of Supreme Audit shall audit the use of public funds in recapitalisation, asset and liability transfers and sales, and adviser contracts. Its audit does not replace Central Bank banking supervision.
Article 15 — Role of the state-owned bank
Each bank remains responsible for daily operations, service continuity and implementation of the reform plan. The Ministry of Finance shall not grant credit, select borrowers or manage banking portfolios.
Article 16 — Independent advisers
International or domestic financial, legal and technical advisers may be engaged under public procurement rules. Conflicts of interest must be disclosed, and advisers shall not buy an asset they valued or presented to an investor.
Article 17 — Parliamentary oversight
The Council of Representatives' Finance Committee shall receive a semi-annual report on state-bank reform progress, recapitalisation costs, transferred assets and results, without publication of legally protected individual banking data.
Article 18 — Duration of the reform programme
The reform programme is transitional and time-limited. It shall not be used to create a permanent body parallel to the Central Bank or Ministry of Finance.
Chapter Three — Diagnosis and comprehensive assessment
Article 19 — Asset quality review
Each state bank shall undergo an independent asset quality review using a Central Bank-approved methodology, covering loans, settlements, collateral, investments, legacy claims and off-balance-sheet assets.
Article 20 — Capital assessment
Actual capital shall be calculated after recognising losses and provisions under supervisory requirements and adopted accounting standards. Unverifiable assets or claims shall not cover the capital gap.
Article 21 — Stress testing
The bank shall undergo stress tests covering deterioration in credit quality, liquidity, exchange and interest rates, deposit outflows, and operational and cyber risks.
Article 22 — Government debt portfolio
Mutual claims between state banks, ministries and public companies shall be inventoried and reviewed for validity, legal basis and repayment schedules. Outstanding balances shall not remain unsettled indefinitely.
Article 23 — Non-performing loans
Non-performing loans shall be classified by recoverability, collateral, related parties, litigation and cause of default. Administrative write-offs without justification and audit are prohibited.
Article 24 — Suspense and legacy accounts
A plan shall address suspense accounts, legacy claims and assets of unknown origin or unsupported by documentation, recording the financial impact and responsibility.
Article 25 — Legal assessment of collateral
Real-estate and commercial collateral and guarantees shall be reviewed for validity, priority, enforceability and current value. Historical nominal value alone shall not be relied upon.
Article 26 — Information systems assessment
The diagnosis shall cover core banking infrastructure, data, cybersecurity, business continuity and connectivity to payment systems, SWIFT and digital channels.
Article 27 — Human resources assessment
An analysis shall cover skills, staff numbers, branches, manual processes, decision-making centres, critical functions and future needs, accompanied by a social transition plan.
Article 28 — Baseline report
Each bank shall receive a baseline report stating its adjusted net financial position, capital gap, distressed assets, risks and options. A non-confidential summary shall be made public.
Chapter Four — Restructuring paths
Article 29 — Reform options
A bank's plan may provide for continuation after recapitalisation, merger, functional separation, transfer of commercial business to a new entity, conversion into a specialised bank or government-account bank, admission of private shareholders, or orderly liquidation.
Article 30 — Choice of path
The path shall be selected after comparing fiscal cost, financial stability, competition, operational capacity, funding feasibility and effects on depositors, employment and government services.
Article 31 — No predetermined institutional structure
This Law prescribes no single name or structure for Rafidain Bank, Rasheed Bank or any other bank. Any structure shown by audit to be least costly, most feasible and protective of financial stability may be adopted.
Article 32 — Merger
Two or more state banks may merge by Council of Ministers decision following Central Bank supervisory approval, valuation of assets and liabilities, and a systems, branch and staff integration plan.
Article 33 — Functional separation
Government-account management and sovereign payments may be separated from commercial banking where separation demonstrably improves competition and governance and prevents mixing of functions.
Article 34 — Establishment of a new bank
A new bank may be established to receive sound assets and liabilities or a specified commercial business after Central Bank licensing and fulfilment of capital and governance requirements. Losses or liabilities shall transfer only at audited values disclosed to supervisory bodies.
Article 35 — Transfer of assets and liabilities
Transfers shall use specified, independently valued schedules stating the valuation basis, transfer date and party bearing subsequent risks for each asset or liability.
Article 36 — Transfer of deposits
Customer deposits shall transfer only to a licensed bank capable of honouring them. Customers shall be notified under applicable rules, and restructuring shall not deprive depositors of their rights.
Article 37 — Transfer of contracts
Contracts, guarantees and ancillary rights shall transfer with the transferred asset or liability where the transfer decision so provides and this accords with the law and parties' rights.
Article 38 — International contracts
Contracts governed by foreign laws and cross-border obligations shall be reviewed before transfer to ensure recognition and enforceability and avoid creating a legal default.
Article 39 — Creditor protection
Restructuring shall not be used arbitrarily to transfer sound assets while leaving non-depositor creditors in an insolvent entity. Statutory priorities and rights shall be observed.
Article 40 — Orderly liquidation
Where a state bank is unviable and no public function justifies retention, its licence may be revoked and it may be liquidated under the Banking Law and Central Bank supervision, with statutory depositor protection.
Chapter Five — Treatment of distressed assets
Article 41 — Non-performing loan strategy
Each bank shall adopt a time-bound programme for non-performing loans, distinguishing sustainable rescheduling, collection, debt sale, collateral enforcement, settlement and accounting write-off.
Article 42 — Asset management company
The Budget Law or a decision based on this Law may establish a temporary state-owned asset management company to receive specified distressed assets from state banks where a study demonstrates that centralised management improves recovery or separates losses more clearly.
Article 43 — Duration of the asset management company
Its articles shall prescribe a term of no more than ten years, extendable once by two years if recoverable assets remain. It shall not become a permanent bank or financing body.
Article 44 — Valuation of transferred assets
Assets shall transfer at fair value or recoverable value under an independent methodology. The Treasury shall not pay a nominal value that conceals losses.
Article 45 — Asset company governance
The company shall have an independent professional board, specialist recovery management and internal and external audit. Debtors or related parties shall not influence settlement decisions.
Article 46 — Settlements
An economically justified settlement is permitted if it achieves greater recovery than litigation or protracted enforcement. Material transactions shall undergo independent committee review, reasoned decision-making and audit.
Article 47 — Debt sales
Portfolios or debts may be sold competitively to qualified investors after customer data and confidentiality are protected. Sham sales to debtor-related parties are prohibited.
Article 48 — Repossessed real estate
Repossessed properties shall be managed for recovery and sale rather than speculation and sold within reasonable periods through competitive procedures, unless retention has a legal justification.
Article 49 — Investigation of corrupt lending
If loan review indicates bribery, forgery, conflicts of interest or lending to a related party in breach of rules, the facts shall be referred to competent bodies while recovery proceedings continue.
Article 50 — Accounting write-off
Writing a loan off the books does not extinguish the legal right to recovery unless a settlement or discharge decision is made in accordance with the law.
Article 51 — Publication of aggregate results
Aggregate data on transferred assets, recoveries, settlements, sales and realised losses shall be published without breaching banking confidentiality.
Chapter Six — Recapitalisation and public funds
Article 52 — Conditions for recapitalisation
The Treasury shall not inject new capital into a state bank before losses are recognised, a reform and governance plan is approved, and the bank's viability is tested.
Article 53 — Recapitalisation instruments
Recapitalisation may take the form of cash, tradable government bonds, conversion of valid claims or other capital instruments accepted by the Central Bank. The instrument's cost shall appear in public finances.
Article 54 — Prohibition on sham recapitalisation
Non-tradable government paper or an unconfirmed claim shall not qualify as capital unless accepted by the Central Bank under supervisory rules.
Article 55 — Losses before recapitalisation
Losses shall first be charged against equity and reserves under the law before public funds are used, with due regard to depositors' and creditors' rights.
Article 56 — Return-on-capital plan
Every government recapitalisation shall carry specific targets for capital, liquidity, profitability, productivity and asset quality, with review deadlines.
Article 57 — Recovery of support
The state may recover part of recapitalisation support through special distributions or a subsequent stake sale once the bank stabilises, provided solvency is not impaired.
Article 58 — Prohibition on dividends
A state bank shall not distribute dividends if it falls below capital requirements, has unresolved accumulated losses or breaches its reform plan.
Article 59 — Government guarantees
State ownership does not constitute a blanket guarantee of bank debts. Any express guarantee shall be subject to financial administration laws, recorded and limited by amount, duration and purpose.
Article 60 — Reform costs
The Ministry of Finance shall annually publish recapitalisation costs, transfers, guarantees and distressed-asset losses in aggregate and by bank, insofar as stability or confidentiality is not threatened.
Article 61 — Least-cost test
Before using public funds, the government shall compare recapitalisation, merger, separation, asset transfer, liquidation and other alternatives, and select the least costly option that secures stability and the required public functions.
Chapter Seven — State-bank governance
Article 62 — Bank ownership policy
The Ministry of Finance, in coordination with the State Ownership Unit, shall define why the state retains each bank and its commercial, developmental or sovereign objectives, reviewing the rationales every four years.
Article 63 — Separation from the ministry
Neither the Ministry of Finance nor any other ministry shall intervene in an individual credit decision, facility grant, customer selection or loan pricing unless part of a funded, legally authorised public programme.
Article 64 — Board of directors
A state bank's board shall comprise seven to nine members, with a non-executive majority and at least one third independent members under Central Bank requirements.
Article 65 — Member qualifications
Members shall be subject to the Central Bank's Fit and Proper requirements. The board shall collectively possess banking, financial, risk, technology, legal and audit expertise.
Article 66 — Nomination
Independent members shall be nominated through an open professional process. Employment grade or ministry affiliation shall not automatically justify membership.
Article 67 — Prohibition on combined roles
The roles of board chair and managing director or executive director-general shall not be combined. A governor or minister shall not sit on the bank's board.
Article 68 — Board committees
The board shall establish audit, risk, nomination, remuneration, compliance and technology committees according to Central Bank requirements and bank size.
Article 69 — Chief executive
The board shall select the chief executive or managing director through professional competition and Central Bank approval where legally required, subject to a performance contract and multi-year indicators.
Article 70 — Internal audit independence
Internal audit shall report functionally to the audit committee and have direct access to the board and records without executive management interference.
Article 71 — Risk management
An independent risk management function shall be established under a qualified officer who can access the risk committee and report limit breaches without commercial management approval.
Article 72 — Compliance
The compliance function shall be independent and cover banking rules, financial sanctions, anti-money laundering, counter-terrorist financing, consumer protection and conflicts of interest.
Article 73 — Related-party transactions
Transactions with ministries, public companies, board and management members and related parties shall comply with Central Bank rules, disclosure and market terms. Unlawful preferential treatment is prohibited.
Article 74 — Annual evaluation
The board and senior management shall be evaluated annually. Repeated poor performance shall justify replacement through legal procedures, rather than daily interference.
Article 75 — Remuneration
Management remuneration shall reflect risk-adjusted performance, sustainability and compliance, rather than loan growth or short-term profits alone.
Chapter Eight — Equivalent supervision and competition
Article 76 — Uniform supervision
State banks shall be subject to Central Bank requirements on capital, liquidity, asset quality, governance, risk and disclosure on an equal basis with private banks, except where the law establishes an objective distinction.
Article 77 — No exemption based on ownership
No state bank shall be exempt from supervisory action, a sanction or corrective measure merely because its capital is state-owned.
Article 78 — Government deposits
The Ministry of Finance shall establish a gradual policy for allocating government deposits and accounts according to safety, efficiency, cost and service criteria. State ownership shall not confer an exclusive right to public deposits.
Article 79 — Government payroll
Payroll account and government payment services shall be open to competition among qualified banks and providers under uniform criteria, protecting employees and their right of choice where the system permits.
Article 80 — Government-directed credit
Where the state assigns a bank a subsidised lending programme, the budget or law shall specify the support, risks, beneficiary group and eligibility criteria. Implicit losses shall not be imposed on the bank without compensation.
Article 81 — Competitive neutrality
A state bank shall receive no tax, regulatory or financing exemption or exclusive access to government services merely because of ownership, except under a statutory provision and public-service rationale.
Article 82 — Government procurement and services
Banking services for government that can be supplied competitively shall be procured under procurement rules or a special competitive framework, rather than automatically assigned to a state bank.
Article 83 — Correspondent relationships
State and private banks shall develop direct correspondent banking relationships under international compliance requirements. The Central Bank shall not act as a permanent commercial intermediary in transactions not requiring its sovereign function.
Article 84 — Restrictive practices
Competition laws shall apply to agreements, market sharing and restrictive practices in banking insofar as consistent with Central Bank powers and financial stability.
Article 85 — Equal access to payments
Access to payment and clearing systems and shared infrastructure shall follow non-discriminatory technical and supervisory rules issued by the Central Bank.
Chapter Nine — Private-bank reform and relicensing
Article 86 — Continuation of the reform programme
The Central Bank shall continue its private-bank reform programme and continuation, merger or exit paths under its powers. This Law does not reopen supervisory decisions lawfully taken.
Article 87 — Minimum standards
The Central Bank may set requirements for capital, solvency, governance, beneficial ownership, operating models, technology, compliance and capacity for international relationships under the Banking Law.
Article 88 — Continuation path
A bank choosing continuation shall follow a plan to remedy gaps within a period set by the Central Bank. Interim restrictions may be imposed on growth, distributions or activities.
Article 89 — Merger path
The Central Bank may facilitate mergers of viable banks where they create a stronger institution. The process shall be subject to valuation, depositor protection, competition and beneficial ownership requirements.
Article 90 — Market exit
A non-viable bank shall exit in an orderly manner under the Banking Law, protecting depositors and stability. Licences shall not be treated as saleable assets without Central Bank approval.
Article 91 — Foreign bank branches
Branches shall comply with Central Bank requirements on allocated capital, liquidity, local governance, compliance, data and relationships with the parent bank.
Article 92 — Qualifying ownership
No person may acquire a direct or indirect qualifying holding in a bank without Central Bank approval and verification of the source of funds, fitness and propriety, and beneficial ownership.
Article 93 — Prohibition on circular ownership
Reciprocal ownership structures, shell companies or financing from the bank itself shall not be used to conceal control or circumvent ownership limits.
Article 94 — Business models
The Central Bank may require a bank to change a business model excessively reliant on a high-risk activity or unsustainable income source where this threatens its soundness or stability.
Article 95 — Supervisory proportionality
Proportionate requirements may apply to smaller banks according to risk without lowering standards of solvency, integrity or depositor protection.
Article 96 — Supervisory transparency
The Central Bank shall publish general standards, methodologies and reform programme timetables while preserving the confidentiality of individual bank assessments.
Chapter Ten — Accounting, disclosure and data quality
Article 97 — Accounting standards
Banks shall prepare statements under accounting standards adopted by the Central Bank and competent statutory bodies, using IFRS where adopted and mandatory.
Article 98 — Expected credit losses
Banks shall estimate expected credit losses under IFRS 9 or the adopted standard and shall not defer loss recognition to preserve fictitious profits or capital.
Article 99 — External audit
An independent, qualified external auditor shall be appointed under Central Bank conditions. Rotation of the audit firm or responsible partner may be required at intervals prescribed by rules.
Article 100 — Central Bank reporting
Supervisory data shall be submitted through Central Bank-designated electronic systems on time and at verifiable quality. Concealment or misleading reporting constitutes a serious violation.
Article 101 — Annual disclosure
Each bank shall publish an annual report covering audited statements, governance, risks, capital, liquidity and major exposures within confidentiality limits and supervisory standards.
Article 102 — State-bank disclosure
A state bank's report shall additionally disclose state support, guarantees, transactions with public bodies, directed programmes and non-commercial obligations.
Article 103 — Data quality
Each bank shall establish a data governance framework defining ownership, quality, provenance, change history, retention and capacity to produce timely risk reports.
Article 104 — Historical data
State banks shall clean and migrate legacy data and outdated accounts before moving to new core systems.
Article 105 — Decision records
Credit decisions, exceptions, settlements and related-party approvals shall be retained in a manner allowing subsequent audit and identification of responsibility.
Article 106 — Disclosure of reform indicators
The Ministry of Finance and Central Bank shall each publish, within their remit, aggregate indicators on recapitalisation, non-performing loans, digitalisation, competition and inclusion without disclosing confidential information.
Chapter Eleven — Digitalisation, cybersecurity and payments
Article 107 — Core banking systems
State banks shall follow a timetable for replacing fragmented or legacy systems with an integrated, auditable core banking platform supporting real-time connectivity.
Article 108 — Identity and access
Banks shall apply strong controls for identity and access management, segregation of duties and multi-factor authentication for sensitive systems.
Article 109 — Cybersecurity
Central Bank requirements for cybersecurity, penetration testing, vulnerability management, incident response and third-party monitoring shall apply.
Article 110 — Business continuity
Each bank shall maintain a recovery site, continuity plan, periodic tests and arrangements to sustain critical services during disasters and outages.
Article 111 — Cloud computing
Cloud services may be used after risk assessment and Central Bank approval where required, with safeguards for data location, audit rights, retrieval and service termination.
Article 112 — Instant payments
Qualified banks shall participate in national and instant payment and clearing systems under technical and supervisory standards.
Article 113 — Digital services
Banks shall enable electronic account opening and services under know-your-customer, digital identity, electronic signature and applicable legal requirements.
Article 114 — Data protection
Banking data shall be processed for lawful purposes and only as necessary, subject to data protection, banking confidentiality and Central Bank rules.
Article 115 — Interfaces
The Central Bank may establish application programming interface and interoperability standards for payments and open banking when the legal, data protection and security frameworks are ready.
Article 116 — Digital fraud prevention
Banks shall establish systems to detect fraud, phishing and account takeover, with rapid procedures to freeze suspicious transactions and notify customers in accordance with the law.
Article 117 — Incident reporting
Banks shall report material cyber and technical incidents to the Central Bank within prescribed periods and notify customers if their rights or data are affected, in accordance with the law.
Article 118 — Technology suppliers
Cloud, processing, payment and outsourcing contracts shall be subject to a third-party risk policy, audit rights, continuity requirements and an exit plan.
Chapter Twelve — Anti-money laundering and international relationships
Article 119 — Compliance with anti-money laundering law
Banks shall comply with Anti-Money Laundering and Counter-Terrorist Financing Law No. (39) of 2015 and rules and decisions issued under it. This Law creates no parallel system.
Article 120 — Risk-based approach
Banks shall identify risks associated with customers, products, channels and countries and apply enhanced due diligence where risk is elevated.
Article 121 — Politically exposed persons
Central Bank rules on politically exposed persons shall apply. Public office alone shall not justify account closure without a risk assessment.
Article 122 — Targeted financial sanctions
Banks shall comply with applicable asset-freezing decisions and targeted financial sanctions and continuously check lists, ownership and control.
Article 123 — Cross-border transfers
Banks shall execute cross-border transfers only through verifiable banking and correspondent channels meeting compliance requirements.
Article 124 — Correspondent banks
Each bank shall establish a correspondent relationship policy covering due diligence on correspondents, understanding their business and controls, and country and product risks.
Article 125 — International trade
Trade finance transactions shall be processed through commercial banks and their correspondent relationships under the approved system. The Central Bank's role shall be limited to supervisory and monetary functions.
Article 126 — Information sharing
Information may be shared among the Central Bank, Anti-Money Laundering Office, competent bodies and banks in accordance with the law and only as necessary to combat financial crime.
Article 127 — Transfer data quality
Transfers shall contain accurate originator and beneficiary information under adopted standards. Incomplete transfers shall be suspended or reviewed in cases prescribed by rules.
Article 128 — Training and testing
Compliance and anti-money laundering teams shall receive periodic training and competency testing appropriate to their functions. The board shall annually evaluate programme effectiveness.
Chapter Thirteen — Protection of depositors and deposits
Article 129 — Deposit insurance system
The existing deposit insurance system and Iraqi Deposit Insurance Company shall continue. Their structure may be updated or the company converted into a specialised statutory institution through subsequent legislation or regulation, based on assessment of independence, funding and payout readiness.
Article 130 — Membership
Licensed banks' participation in deposit insurance shall be compulsory under existing rules. No deposit may be advertised as guaranteed beyond the system's limits.
Article 131 — Scope of coverage
The deposit insurance system shall clearly define and publish coverage limits, categories and exclusions, reviewing them periodically according to deposit size and the fund's financial capacity.
Article 132 — Prefunding
The insurance system shall rely, as far as possible, on premiums and adequate prefunding. Risk-based premiums may be introduced once data and technical capacity are available.
Article 133 — Rapid payout
Regulations shall set a target timeframe for compensating insured depositors when a bank fails and its licence is revoked, alongside development of a unified register of eligible deposits.
Article 134 — Depositor priority
Depositor protection and priorities prescribed by the Banking Law shall be observed in liquidation. Insurance funds shall not rescue shareholders or management.
Article 135 — Recovery
To the extent of compensation paid, the deposit insurance system shall be subrogated to the depositor's rights against the failed bank in accordance with the law.
Article 136 — Awareness
Each bank shall clearly display its membership and actual coverage limits. Misleading advertising implying an unlimited state guarantee is prohibited.
Article 137 — Readiness tests
The insurance system and Central Bank shall conduct periodic bank-failure scenario tests covering data verification, liquidity and payout mechanisms.
Article 138 — Coordination with reform
The Deposit Insurance Company shall not finance state-bank recapitalisation or restructuring losses borne by the owner, unless intervention falls within statutory deposit-protection powers and costs less than payout.
Chapter Fourteen — Credit and financial infrastructure
Article 139 — Credit information
The Central Bank shall develop a modern credit information system covering individuals, companies, loans, collateral and defaults under data protection and rectification-rights rules.
Article 140 — Credit bureaus
Private credit bureaus may be licensed under governance, security, accuracy and non-discrimination standards. The Central Bank shall determine data-sharing conditions.
Article 141 — Unified collateral register
Banks shall connect to legal registers of mortgages, security interests, movable assets and real estate where available, with electronic verification of priority and ownership.
Article 142 — Small-enterprise finance
Banks shall be encouraged to develop financing products for small and medium-sized enterprises based on cash flows and data rather than real estate alone, without lowering credit standards.
Article 143 — Credit guarantees
Credit guarantee companies and programmes may share risks for specified groups. Government support must be disclosed, and concealment of bank losses avoided.
Article 144 — Mortgage finance
Mortgage finance shall be subject to valuation, collateral, loan-to-value and loan-to-income rules set by the Central Bank according to risk. Registration and enforcement rules shall be developed with competent bodies.
Article 145 — Agricultural and industrial finance
Government support for sectoral credit shall operate through transparent, funded programmes with defined objectives. A state bank shall not finance an unsustainable loan to satisfy an administrative objective.
Article 146 — Electronic registers
Within legal limits, the Central Bank may connect to government registers to verify identity, companies, beneficial ownership, taxes and collateral.
Article 147 — Alternative data
Payment, invoice and e-commerce data may be used for credit assessment with customer consent or another legal basis and data protection safeguards.
Article 148 — Prohibition on credit discrimination
Credit shall not be refused or priced on a legally prohibited discriminatory basis. Objective, explainable risk factors may be used.
Chapter Fifteen — Banking consumer protection
Article 149 — Price and cost disclosure
The interest rate or profit margin, fees, total cost, repayment schedule and penalties shall be stated clearly before contract signature.
Article 150 — Standard contracts
The Central Bank may set minimum requirements for consumer banking contracts to prevent unfair terms and ensure customers receive a contract copy and account statement.
Article 151 — Complaints
Each bank shall establish a reasonably independent complaints mechanism with published deadlines. Customers shall have a right to escalate complaints to the Central Bank or the body designated by law.
Article 152 — Debt collection
Abusive collection practices, threats and disclosure of customer data without a lawful purpose are prohibited. This does not prevent banks exercising judicial and enforcement rights.
Article 153 — Dormant accounts
Rules shall govern dormant accounts, contact with their holders and safeguarding funds, which shall not be confiscated merely for inactivity.
Article 154 — Account closure
Customers shall be informed of the reason for account closure where legally permitted and given an opportunity to withdraw the balance, except where disclosure is prohibited to combat financial crime.
Article 155 — Customer fraud
Banks shall bear specified responsibilities for unauthorised transactions according to the bank's and customer's degree of fault and technical controls. The Central Bank shall establish uniform settlement rules.
Article 156 — Financial inclusion
Banks shall support low-cost accounts and digital services suitable for underserved groups, while maintaining simplified, risk-based know-your-customer requirements where legally permitted.
Article 157 — Persons with disabilities and older persons
Banks shall provide reasonable accessibility to branches, digital channels and information for persons with disabilities and older persons under applicable laws and adopted standards.
Article 158 — Financial literacy
The Central Bank and banks shall coordinate public awareness programmes on saving, credit, digital fraud and deposit insurance. Such programmes shall not be used for misleading promotion.
Chapter Sixteen — State-bank employment
Article 159 — Protection of rights
Restructuring shall respect employees' acquired rights under civil service, labour and retirement laws and existing contracts. Asset transfers or mergers shall not extinguish those rights.
Article 160 — Workforce plan
Each bank's plan shall analyse roles, skills, surplus staff, required digital and supervisory functions, and retraining and transition programmes.
Article 161 — Redeployment
Priority shall be given to redeploying qualified employees within the bank, among state banks or to public financial bodies where genuine need and a lawful vacancy exist.
Article 162 — Retraining
Intensive programmes shall cover risk, compliance, technology, data, customer service and modern accounting, linked to outcomes and examinations rather than formal attendance.
Article 163 — Retirement and voluntary departure
Retirement or voluntary departure programmes may be adopted under the law after their cost is calculated and clearly funded through the budget or reform plan.
Article 164 — Termination
If a position cannot continue after alternatives are exhausted, applicable termination, compensation and retirement laws shall apply. Employees shall not be nominally transferred to a body with no need for them.
Article 165 — New entity employees
Employee transfers to a new bank shall reflect job requirements, competence and a fair plan. The entire establishment shall not transfer automatically if this would reproduce the same imbalance.
Article 166 — Prohibition on parallel recruitment
A downsizing or redeployment programme shall not be followed by extensive recruitment into the same positions without a professional justification and approval under the workforce plan.
Article 167 — Pay and incentives
State-bank pay structures may be reformed to attract banking and technical skills, with incentives linked to performance, compliance and sustainability.
Article 168 — Dialogue with workers
Worker representatives shall be consulted early on the effects of merger, separation or conversion on jobs, without granting a veto over a reform decision lawfully made.
Chapter Seventeen — Transition and final provisions
Article 169 — National plan within six months
Within six months, the Reform Council shall submit to the Council of Ministers a detailed national state-bank plan covering the baseline, proposed path for each bank, costs and deadlines.
Article 170 — Priority for Rafidain and Rasheed
Restructuring Rafidain and Rasheed shall be a first-phase priority because of their size and role in government accounts, without the law predetermining the final merger or separation model before assessment is complete.
Article 171 — Specialised state banks
The Agricultural, Industrial, Real Estate and Al-Nahrain Islamic banks, the Trade Bank of Iraq and other state banks shall undergo periodic review of ownership rationale, operating model and governance. Each shall receive a clear, measurable function.
Article 172 — Review of founding statements
State-bank founding statements and internal rules shall be amended to comply with this Law and the reform plan within eighteen months.
Article 173 — Existing contracts and rights
Existing contracts, deposits, guarantees and rights remain valid. The transfer or merger decision shall clearly identify the legal successor to prevent interruption of rights.
Article 174 — Regulations and instructions
The Council of Ministers shall issue regulations on restructuring and public funds on the Ministry of Finance's proposal. The Central Bank shall issue supervisory rules within its remit. Implementing regulations shall not restrict Central Bank independence.
Article 175 — Amendment of related legislation
Within one year, the government shall submit necessary amendments to state-bank laws or founding statements and any provisions conflicting with separation of ownership and supervision or transfer of assets and liabilities.
Article 176 — No automatic licence cancellation
This Law's entry into force shall not itself cancel any bank licence or freeze its activities. Licensing and restriction decisions remain the Central Bank's responsibility under the law.
Article 177 — Review after three years
The government and Central Bank shall each review programme results within their remit after three years, covering capital, non-performing loans, competition, digitalisation, correspondent relationships and depositor protection.
Article 178 — Final cost report
After the principal restructuring is completed, the Ministry of Finance shall publish a report on total Treasury costs, recovered assets, guarantees and results, with financial data certified by the Board of Supreme Audit.
Article 179 — Non-interference in monetary policy
State-bank recapitalisation or operational instructions shall not be used to finance deficits or circumvent Central Bank rules on reserves, liquidity or monetary policy.
Article 180 — Entry into force
This Law shall enter into force ninety days after publication in the Official Gazette.
Statement of reasons
This Law is enacted to complete reform of Iraq's banking system and strengthen its ability to protect deposits, finance the economy and integrate into the international financial system; establish a clear legal framework for restructuring state banks and addressing distressed assets, capital shortfalls and legacy accounts; regulate asset and liability transfers, merger, separation and liquidation where needed; and strengthen Central Bank independence, equal supervision, governance, digitalisation, cybersecurity, competition, consumer protection and deposit insurance.
Explanatory memorandum
Why is the Banking Law not repealed?
The essential licensing and supervisory tools already exist and are used by the Central Bank. The particular need concerns public funds, state ownership, legacy assets, employees and transfers of rights during restructuring, none of which requires dismantling the entire banking framework.
Why does the law not prescribe a structure for Rafidain and Rasheed?
The optimal structure depends on asset quality review results, actual values and legal and technical obligations. The law therefore creates tools for merger, separation, transfer and establishment, leaving selection to assessment results and the least-cost test.
Asset management company
This is a temporary tool separating assets requiring lengthy recovery from the operating bank. It is neither a new bank nor a permanent repository for losses. Its task ends when the portfolio is resolved.
Deposit insurance
Iraq already has a deposit insurance company. The proposal therefore focuses on payout speed, funding, data and readiness rather than creating a second institution with the same function.
Employment
Accrued rights transfer, but automatically moving the entire workforce to a new entity may reproduce imbalances in skills and size. Transition is therefore preceded by job analysis, retraining, redeployment, voluntary departure paths and statutory rights safeguards.
State-owned banks and restructuring
| Phase | Requirement | Outcome |
|---|---|---|
| Diagnosis | Asset quality, capital, liquidity, technology and employment. | Audited baseline. |
| Loss recognition | Provisions, non-performing loans and legacy accounts. | Actual capital. |
| Path selection | Continuation, merger, separation, new entity, asset transfer or liquidation. | Least-cost test. |
| Recapitalisation | After a plan, governance and indicators are established. | Conditional funding. |
| Implementation | Legal transfer of assets, deposits, contracts and employees. | Service continuity. |
Private banks and competition
The proposal does not redefine the reform paths established by the Central Bank but recognises them as existing supervisory practice. Its legislative additions focus on transparent ownership and beneficial ownership, preventing circular ownership, competition for government services, and strengthening the credit and digital infrastructure banks need.
Deposit protection
In September 2026, the Central Bank confirmed all licensed banks' participation in the Deposit Insurance Company. The proposal treats the system as a depositor safety net, not a means to rescue shareholders or cover state-bank recapitalisation costs.
Digitalisation and compliance
Technical reform is not the purchase of a single software package. It means integrating data, accounts, branches, credit, risk, compliance and payments into auditable systems with cybersecurity, business continuity and external supplier oversight. The law also supports shifting trade finance and external relationships to banks capable of compliance and direct correspondent banking.
Employment and transition
Any downsizing is preceded by a study of roles, skills and future needs, followed by redeployment, training and voluntary solutions. Transfer to any new banking entity shall follow job requirements and published criteria while preserving statutory rights.
Legislative alignment
| Framework | Treatment |
|---|---|
| Central Bank Law No. (56) of 2004, as amended | Remains in force, with the Bank's independence protected. |
| Banking Law No. (94) of 2004 | Remains the general law for licensing, supervision, intervention and liquidation. |
| Islamic Banking Law No. (43) of 2015 | Remains the specific reference for Islamic banks. |
| Anti-Money Laundering and Counter-Terrorism Financing Law No. (39) of 2015 | Remains the primary reference for compliance and financial crime. |
| Public Companies Law or its replacement | Applies to state banks' institutional form in matters not regulated by the reform law. |
| State-bank founding statements | Amended during transition according to each bank's structure. |
Financial and Implementation Implications
The largest potential fiscal impact is the cost of recognising losses and recapitalising state banks, which cannot be reliably estimated before reviewing each bank's asset quality and capital gap. The proposal therefore supplies no aggregate figure implying false precision.
The law requires the government to publish actual costs annually: new capital, recapitalisation bonds, guarantees, transferred assets, asset management company losses and recoveries, with a least-cost test before a path is selected.
Transition and Implementation
The first phase begins with a national plan within six months and asset quality reviews, prioritising Rafidain and Rasheed because of their size and government functions. Entry into force does not suspend any bank or freeze its accounts; services and licences continue until the necessary legal and regulatory decisions are issued.
Results are reviewed after three years. Once the main restructuring is complete, the Ministry of Finance publishes the audited final cost report, allowing assessment of reform's effects on the Treasury, credit, competition and depositor protection.
Sources and references
- Central Bank of Iraq — Banking Law No. (94) of 2004The official text of the primary law on bank licensing, supervision, capital, intervention and liquidation.
- Central Bank of Iraq — Banking legislation in forceLists Central Bank Law No. (56) of 2004, as amended, Banking Law No. (94) of 2004, Islamic Banking Law No. (43) of 2015, and Anti-Money Laundering and Counter-Terrorist Financing Law No. (39) of 2015.
- Central Bank of Iraq — State-owned banksThe official list of state-owned banks, their capital and founding statements.
- Ministry of Justice — Amendment to Rafidain Bank's founding statement, Iraqi Official Gazette 7492 of 2024Documents Rafidain Bank's continued status as a public company and amendment of its founding statement in 2024.
- Central Bank of Iraq — Banking reform projectThe official private-bank reform programme platform, with continuation, merger and exit paths and 2026 guidance.
- Central Bank of Iraq — Statement of 26 February 2026 on reform pathsConfirms banks' selection of continuation, merger or exit paths and the start of compliance assessment.
- Central Bank of Iraq — Banking supervisionPresents the latest supervision, risk management and compliance rules during 2026.
- Central Bank of Iraq — Reintegration of seven banks into the global financial system, 18 July 2026Documents the link between reform progress, compliance, governance and restoration of foreign correspondent channels.
- Central Bank of Iraq — Deposit insurance, 5 September 2026Confirms all licensed banks' participation in the Deposit Insurance Company and its depositor-protection role.
- Central Bank of Iraq — Establishment of the Iraqi Deposit Insurance CompanyDocuments establishment of the company with state, private and foreign bank participation.
- Central Bank of Iraq — Payment systemsExplains state and private bank participation in national payment infrastructure.
- International Monetary Fund — Iraq 2025 Article IV ConsultationCalled for a comprehensive plan to restructure state banks and address non-performing loans, capital shortfalls, governance and digital infrastructure.
- International Monetary Fund — Iraq Report No. 25/183 of 2025Contains a detailed assessment of the two largest state banks, restructuring and recapitalisation options, and support for private banks.
- Ministry of Justice — Decision establishing Rafidain Bank as a public companyDocuments publication of the decision establishing Rafidain Bank as a public company within the Ministry of Finance.
- Central Bank of Iraq — Corporate Governance Guide for BanksA reference for mandatory board, committee and governance requirements for banks operating in Iraq.
Proposed legislation within Ali Zuweid's Political Programme · Prepared by Ali Zuweid