Commercial Islamic Bank of Iraq – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) 5 February 2026

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Commercial Islamic Bank of Iraq (CIBIQ or the Bank) − formerly the Commercial Bank of Iraq – at ‘B’ and ‘B’, respectively. The LT FCR Outlook is Stable. CI Ratings has also affirmed CIBIQ’s Bank Standalone Rating (BSR) of ‘b-’ with a Stable Outlook, Core Financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of High.

At the same time, CI has affirmed CIBIQ’s Long- and Short-Term Ratings on the Iraq National Scale of ‘iqA-’ and ‘iqA2’, respectively, with a Stable Outlook. These ratings are supported and constrained by the same factors as the CFS, as outlined below.

CIBIQ’s LT FCR is set one notch above the BSR to reflect the high likelihood of extraordinary support from its parent, Kuwait Finance House Bahrain (KFHB), whose BSR is ‘bbb’. CI considers KFHB to be able and willing to provide extraordinary support to CIBIQ on the basis of its creditworthiness. Although the ESL is High, there is only a one-notch uplift for the Bank’s LT FCR, as the latter is constrained by CI’s internal assessment of sovereign risk for Iraq. KFHB is the largest subsidiary of the dominant Kuwaiti bank, Kuwait Finance House (KFH).

The Bank’s BSR is derived from a CFS rating of ‘bb-’ and the constraints imposed by Iraq’s Operating Environment Risk Anchor (OPERA) of ‘c+’. The CFS rating reflects the Bank’s strong ownership and proficient management – the latter benefiting from the Technical Services Management Agreement (TSMA) with KFHB. Financial factors supporting the CFS are the conservative balance sheet leverage ratio, as well as sound CAR and good capital flexibility, high liquidity, and consistently good profitability despite some volatility. The principal credit challenges are the difficult operating environment and Iraq’s sovereign risk (as is the case with peer banks), the small balance sheet and market share, and large concentrations in government securities and customer deposits. Iraq’s high systemic liquidity risk and weak regulatory and supervisory framework (though improving) are also credit challenges.

CIBIQ’s strong parentage bestows significant non-financial and financial benefits. The TSMA ensures the provision of administrative and technical services, along with direct support aimed at developing the Bank’s operations and banking franchise. Risk management practices are in general sound. However, in common with many (but not all) all peer banks, the Bank’s business model is narrow in scope, and the balance sheet and market share are small. A corollary of this is high concentration risk seen in assets and customer deposits. These factors reflect in part an underdeveloped banking system, alongside elevated credit and liquidity risks, and a persistently difficult Iraqi operating environment.

The Bank achieved full conversion to Islamic banking at end-December 2024, in line with targets set by management and KFHB. Management is focused on resuming financing in the current year (albeit cautiously) with an emphasis on corporate and, to a lesser extent, retail financings. Although the financing portfolio is projected to grow significantly over the next four years (from a very low base), management has set a prudent financing to asset ratio target. CI considers the Bank to have a high credit risk profile – as is the case with other Iraqi banks – due to the difficult operating environment and large concentration in quoted government bonds. The latter, as well as Central Bank of Iraq (CBI) balances, come firmly under the sovereign risk category in accordance with CI’s criteria. Exposure to Iraqi sovereign bonds was equivalent to 109% of total equity in Q3 25. This means that a sovereign credit event could potentially transmit stress to CIBIQ’s balance sheet including capital, as well as earnings. This is expected to remain an important risk factor for the ratings in the short to medium term.

Given the negligible size of the financing portfolio, CI’s standard measures for assessing financing asset quality analysis are not very meaningful. That said, overall financing asset quality has steadily improved over the last three years. Non-performing financings (NPFs) declined further as a result of the transfer of fully provisioned legacy Stage 3 accounts off-balance sheet and, to a lesser extent, recoveries. With the resumption of financing, CI envisages new NPFs to emerge as part of the normal business cycle. However, given our expectation for the financing portfolio to remain relatively small looking ahead, coupled with the Bank’s sound credit policy, the NPF accretion rate is likely to be acceptable.

In line with the banking sector reforms recently initiated by CBI, the deadline for complying with the revised paid-up capital requirement of IQD400bn for all Iraqi banks was extended to end-H1 28. Having capitalised an additional IQD35.1bn from reserves in 9M 25, the Bank aims to continue capitalising retained earnings to fulfil the regulatory requirement. The balance sheet is nonetheless well-capitalised, and the leverage ratio is maintained at a prudent level, offering significant scope to expand financings and the asset base. However, the total CAR and CET1 ratio are flattered by the zero risk-weighting of Iraqi bonds and CBI balances. Given the planned successive increases in paid-up capital, we expect capital ratios to remain sound relative to the rating level. Capital quality is good, given the dominance of CET1 funds. However, due to the high concentration in Iraqi government bonds, we consider the Bank’s capacity to withstand unforeseen losses to be moderate. Capital flexibility is nonetheless high, given the strong ownership.

The Bank has maintained a consistently good liquidity position. We expect liquidity to continue to support the ratings in the medium term. However, liquidity is subject to considerable concentration risk, as the bulk of funds is deployed into government bonds. Given that the latter may not be liquid in times of sovereign distress, liquidity is vulnerable to sovereign risk. The emphasis on safeguarding liquidity is crucial in a banking system where the CBI is understood to perform lender-of-last-resort functions only in exceptional circumstances. Although the contribution of customer deposits to funding remains limited, we consider CIBIQ’s customer deposits sensitive to confidence shocks given the high probability of event risk in Iraq. There persists a general lack of trust in banks among the public. Nonetheless, CIBIQ is a self-funding entity. Ongoing high depositor concentrations elevate liquidity risk to some degree, but this factor is mitigated by a significant stock of liquid assets. CI considers that CIBIQ would be able to access liquidity support from KFHB (and/or KFH) in case of need.

Notwithstanding some degree of volatility in non-financing income (non-FI), the Bank’s operating and net profitability have been comparatively good over the last five years, in contrast to most other Iraqi banks. This is a credit strength. Operating profitability provides effective risk absorption capacity. Recurring net financing income is the largest contributor to operating income. Earnings quality is therefore satisfactory, although sources of non-FI are volatile and limited, in large part due to a narrow business model and limited customer base. Cost efficiency is expected to remain good despite the projected increase in operating costs related to business expansion and investment in digital transformation.

The OPERA – a key rating constraint for all Iraqi banks – reflects very high political and geopolitical risk factors, and continued reliance on hydrocarbons coupled with the lack of a comprehensive reform agenda that would diversify the economy and shield it from exogenous shocks. Economic risk is further exacerbated by Iraq’s low institutional strength and the government’s limited and reduced access to its USD reserves held at the US Fed. On the other hand, the Iraqi economy is supported by the country’s large hydrocarbon reserves (second-largest OPEC producer) as well as adequate foreign exchange reserves and improving data disclosure. Structural weaknesses in the banking sector continue to prevail, giving rise to high systemic risk.

Rating Outlook

The Outlook for CIBIQ’s ratings is Stable, indicating that they are unlikely to change over the next 12 months. This reflects our view that the Bank will maintain its current risk profile.

Rating Dynamics: Upside Scenario

We do not expect an upward change in the ratings and/or outlook, unless the OPERA and our internal assessment of Iraq’s sovereign credit risk both improve. These are currently seen as being unlikely to change within a 12-month timeframe.

Rating Dynamics: Downside Scenario

Although not our current expectation, the Bank’s ratings could be reduced by one notch over the next 12 months in the event key metrics deteriorate considerably. The ratings could also be lowered should the OPERA and/or our internal assessment of sovereign risk deteriorate.
Ratings

*A National Rating summarises the repayment risk of an entity relative to other entities within the same economy. It is not an absolute measurement of risk. National Ratings are not directly comparable across borders.

Contact

Primary Analyst: Morris Helal, Senior Credit Analyst; E-mail: ...
Secondary Analyst & Committee Chairperson: Rory Keelan, Senior Credit Analyst


About the Ratings

The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.

The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2021-24 and Q3 25. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers.

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The principal methodologies used to determine the ratings are the Bank Rating Methodology, dated 3 April 2019, and the National Scale Ratings Criteria for Iraq, dated 15 March 2020. For the methodology and our definition of default see Information on rating scales and definitions and the time horizon of rating outlooks can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at

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