Figures released by the Central Bank of Iraq (CBI) indicate that the Iraqi banking sector is stable, with sound liquidity levels and a stable depositor base. The ratio of private sector deposits at banks to broad money supply M2 increased marginally from 27.6% at the end of September 2017 to 27.8% at end-September 2018. Also, the ratio of currency in circulation to M2 declined from 46.2% at the end of September 2017 to 43.2% at end-September 2018. In parallel, the sector's loans-to-deposits ratio stood at 50.9% at the end of September 2018, below the CBI's ceiling of 70%, and which reflects the banks' sufficient liquidity to weather sudden deposit withdrawals. Further, the banks' return on assets rose from 0.42% in the third quarter of 2017 on an annualized basis to 0.53% in the third quarter of 2018, while their return on equity declined from 5.41% in the third quarter of 2017 on an annualized basis to 4.36% in the third quarter of 2018, due to a rise in the banks' capital levels. Also, the non-performing loans (NPLs) ratio increased from 8.8% at end-September 2017 to 12.4% at end-September 2018, while NPL provisions declined from 74.8% at end-September 2017 to 71.8% at end-September 2018. The CBI indicated that banks should increase their provisions in order to improve their coverage of NPLs and protect the banking system from default events. 
Source: Central Bank of Iraq, Byblos Research