Iraqi Islamic Bank for Investment and Development – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) 9 April 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 the Iraqi Islamic Bank for Investment and Development (IIB or the Bank) at ‘B-’ and ‘B’, respectively. CI Ratings has also affirmed IIB’s Bank Standalone Rating (BSR) of ‘b-’, Core Financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of Uncertain. The Outlook on the LT FCR and BSR is Stable.

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

The Bank’s BSR is derived from a CFS rating of ‘bb-’ and an Operating Environment Risk Anchor (OPERA) of ‘c+’. The CFS is supported by a leading and expanding Islamic corporate banking franchise in Iraq, good liquidity underpinned by customer deposit funding, and sound CAR including a high Tier 1 component and balance sheet leverage ratio. The leading credit challenge is currently seen as the ongoing armed conflict between US-Israel and Iran, although one that may prove to be short-lived, with CI’s baseline assumption being that military exchanges will have significantly reduced in severity by the end of the current month (April). Other rating constraints are IIB’s high credit risk profile (in common with peer banks) due to Iraq’s economic and geopolitical vulnerabilities, the concentrations in assets and customer deposits, and the small (albeit growing) market share and balance sheet. Although gradually improving, the weak regulatory and supervisory framework is also a credit challenge. The OPERA is at a level indicative of a high degree of risk and is a key rating constraint for all Iraqi banks.

CI considers the likelihood of sufficient and timely official extraordinary support being made available to IIB (and all other private sector banks) in the event of financial distress to be uncertain. Even if the government may be willing to provide extraordinary support in case of need, its financial capacity to do so is limited, as indicated by our internal assessment of Iraq’s sovereign risk. Consequently, CI does not incorporate such support into the Bank’s LT FCR.

IIB has achieved significant progress expanding the business franchise in recent years, despite a still small market share and balance sheet. The stable management, alongside a focused business model and strategy, continues to ensure the balance sheet remains fairly resilient throughout the economic cycle. This is a rating supporting factor. However, given the focus on corporate banking, customer concentration risk is high, with this feature elevating the Bank’s risk profile to some degree. The arrival in 2025 of well-regarded Jordan-based Safwa Islamic Bank, as a 10% shareholder, bodes well for the business franchise and prospects. IIB is expected to leverage the combined experience to deliver a diverse range of banking services and financing solutions in the expanding Iraqi market.

The Bank’s exposure to credit risk is considered to be high given our internal assessment of Iraq’s sovereign creditworthiness. Under CI’s rating criteria, Central Bank of Iraq (CBI) balances including CBI Islamic certificates of deposit come firmly under the sovereign risk category. This raises concentration risk issues, particularly within the context of Iraq’s high sovereign credit risk. In our view, a significant sovereign credit event could potentially transmit stress to IIB’s balance sheet including capital, as well as earnings. CI anticipates this will remain an important risk factor for the ratings in the intermediate term. CBI exposure equated to a significant multiple (0.9x) of the Bank’s total equity in Q3 25.

Overall financing asset quality improved after having weakened a year earlier. Non-performing financings (NPFs) (Stage 3) declined due to a combination of recoveries, settlements and general improved debt servicing. The effective remedial measures in place ensure that impaired financings are recovered and that NPF accretion is effectively controlled. While the contraction seen in Stage 2 facilities is a positive development, this has been subsequently countered by the recent economic shock from regional geopolitical events. Liquidity conditions in the economy could deteriorate in the short term, producing downside risks to financing asset quality. This risk factor is exacerbated by borrower concentrations. Although financing-loss reserve cover for NPFs was restored to a satisfactory 96% in 9M 25, the Bank’s capacity to build provisions weakened as a result of a recent decline in operating profit. This is partially mitigated by a sound extended NPF coverage ratio of 847%.

IIB fulfilled the revised regulatory paid-up requirement of IQD400bn in 9M 25. The balance sheet remains well-capitalised, despite a decline in total CAR due to Basel III implementation. High-quality CET1 funds dominate the capital base, with this being an important risk-mitigating factor given the high probability of event risk in Iraq. That said, total CAR is flattered to some degree by zero risk-weighted CBI bank balances. Although the balance sheet leverage ratio has declined from the level seen four years earlier, we expect capital ratios including the buffer to remain at broadly current levels in the short term. The retention of full earnings has supported internal capital generation in recent periods.

Notwithstanding the prevailing high systemic liquidity risk, IIB maintains good liquidity levels, underpinned by customer deposit funding. This factor supports the ratings. The liquidity position underscores the low share of net financings in total assets, alongside significant holdings of CBI balances, cash and deposits with other banks. The safeguarding of liquidity is crucial in a market where the central bank is not a formal lender-of-last-resort (particularly for private sector banks), and also where depositor concentration risk is high. Financing-based liquidity ratios are good and clearly indicative of IIB’s significant lending potential. The Bank continues to build its customer deposit base, despite increasing competition amid a difficult operating environment. Its deposit gathering capability is aided by a good reputation, notwithstanding a limited branch network. However, there is a heightened degree of withdrawal risk in the face of the regional conflict. The customer deposit base of all Iraqi banks is vulnerable to external shocks given low depositor confidence and a high probability of event risk. Depositor concentration risk is partially mitigated by a significant stock of liquid assets.

Despite the variability seen over time, IIB has been consistently profitable over the past decade, in contrast to almost all other Iraqi private sector banks. This is in part a function of its comparatively long track record and satisfactory operating income generation. Having peaked in the preceding two years, both ROAA and operating profitability declined significantly in 9M 25 due to lower net financing income and non-financing income. Although the net financing margin (NFM) narrowed in the face of increasing competition, it remained better than the level seen in 2022. The high liquidity – including non-remunerative CBI balances − has the effect of compressing the NFM. Looking ahead, the NFM is expected to improve with the gradual penetration into high-margin retail banking. Although the earnings outlook faces some downside risks given the difficult operating environment, CI expects operating profitability to continue to provide just moderate risk absorption capacity. Cost efficiency remains good.

The OPERA reflects very high political and geopolitical risk factors. The armed conflict in the Arabian Gulf has caused a deterioration in the Iraqi and regional operating environment. Heightened geopolitical uncertainty across the Middle East has produced meaningful downside risks should military escalation prove prolonged and lead to the complete and protracted closure of the Strait of Hormuz. For Iraq, there remains a lack of a comprehensive reform agenda that would diversify the economy away from hydrocarbons and shield it from exogenous shocks. Economic risk is further exacerbated by Iraq’s low institutional strength and the government’s limited 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.

Rating Outlook

The Outlook for IIB’s ratings is Stable, indicating that they are unlikely to change over the next 12 months. This reflects our view that the Bank will broadly 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 that key metrics weaken considerably. The ratings could also be lowered should the OPERA and/or our internal assessment of sovereign credit risk deteriorate.

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 9M 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.

CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.

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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