Iraq is running Egypt’s 2000s banking reform playbook

Roughly 95% of new businesses in Iraq fund themselves without ever touching the banking system. Some 80% draw on personal savings and another 12-13% borrow from relatives and friends, Iraq specialist Frank Gunter (LinkedIn) tells EnterpriseAM. “This represents a massive open market for Egyptian and GCC banks,” he says. To most of the region’s lenders, that 95% is a market-size number — a generational pool of deposits and loans waiting to be captured. But as anyone who did time as a banker in Egypt two decades ago will recognize, it’s also something of a rerun.

The corporate version of this story is already well underway. Iraq was the top destination for outward FDI from Egyptian private-sector companies in 2025, as we reported. Real estate giant TMG secured land for a USD 10 bn megaproject in Baghdad. EGX-quoted snackmaker Edita was one of the first to have moved in, and real estate player Ora Developers is also there now. The National Bank of Egypt is mulling an expansion into Iraq, but the banking story is less about following corporates across the border and more about the fact that Iraq is now walking, almost step for step, a path Egypt has already walked.

Is this play about us?

“Iraq is a baby version of Egypt — or Egypt at its early days when it opened up to institutional investors,” AFC Iraq Fund chief strategist Ahmed Tabaqchali tells us. Tabaqchali was previously head of brokerage at NBK Capital and a former board member at Capital Investments, part of Jordan’s Capital Bank. Egypt went through a consolidation wave that saw the central bank push for the consolidation of smaller institutions as the professionalization, including the import of institutional risk-pricing expertise, and “a similar wave is coming to Iraq,” he says.

“It’s a copy-paste similarity,” says veteran Egyptian banker Mohamed Abdel Aal, referring to Iraq’s decision to lift its minimum-capital threshold last year. When the Central Bank of Egypt raised minimum capital requirements for banks to EGP 500 mn (around USD 80-90 mn at the time) in its 2004-2008 reform program, “the number of banks shrank from 57 to 39.” That single move — a capital shock that forces weaker players to merge or exit — is the one Iraq has just triggered.

The changes to capital requirements in Egypt were just the trigger — the actual playbook is what followed: The central bank pressed state-owned banks to divest their stakes in joint-venture lenders, which opened the door to a new generation of foreign strategic investors — Italy’s Sanpaolo, Kuwait’s NBK, Blom and Audi from Lebanon and others — who “started entering … doing due diligence and snatching them at the cheapest prices,” as Abdel Aal recalls.

A massive cleanup of bad loans on the books of the so-called Big Four state-owned banks came at the same time, and the CBE orchestrated it all in a way that ensured not a single depositor lost a piastre.

New blood came into the industry: A cohort of young, often foreign-educated bankers — “Harvard kids who understand what they are doing,” as Abdel Aal put it — parachuted into the central bank and the state-owned lenders to run the transition. Guiding the process was a generation of ambitious mid-career professionals who had started rebuilding the industry after lenders were swamped by an economic crisis in the late 1990s. Today, those mid-career bankers are the industry’s leaders — among them Hassan Abdalla, today the governor of Egypt’s central bank, who was instrumental in the creation of the modern interbank market.

Iraq is now several frames into the same reel. Its “banking reform” program — which Tabaqchali says is “more like inclusion banking and reform” — is being built with Oliver Wyman and requires each bank to have a qualified institutional investor as a primary shareholder. That’s a bar that, in practice, only a real bank can clear.

The early movers were Jordanian and out of the Gulf, not Egyptian. The Capital Bank of Jordan holds roughly 62% of the National Bank of Iraq. Jordan Kuwait Bank, part of Kuwait’s KIPCO group, took majority control of the Bank of Baghdad in 2023. Qatar National Bank owns about 54% of Mansour Bank. Iraq caps none of this — there is no ceiling on foreign bank ownership, and, Tabaqchali notes, “the central bank realizes banking expertise is very limited in Iraq and wants expertise to come.”

Egyptian lenders have so far sat it out, having pushed through a foreign exchange crisis of 2022-2024 that saw many of them short USD — and shoving excess EGP liquidity into high-yield government debt. With the Egyptian economy now standing on its own feet (and, critically, the CBE keeping its thumb off the FX scale during the US-Iran war in the Gulf) Egyptian bankers may now be more interested in capturing domestic opportunity than they are in setting up foreign outposts.

What Egypt could offer Iraq: The lived memory of running this exact transition. Gulf and Jordanian institutions have landed in Baghdad with a decade of Iraq-specific learning that Egyptian institutions lack. But Egyptian banks have the muscle memory that comes from having lived through transitions and crises including devaluations and non-performing loan crises. Egyptian bankers have lived through a hard pivot from asset-based to cash-flow lending. And they’ve got PhDs in breaking through cultural resilience while building world-class governance and risk-management systems.

“The biggest benefit we can derive from cross-regional experience is expertise,” Tabaqchali says. “How did Egyptian banks cope when revenues from tourism or the Suez Canal were under stress? Many businesses would have needed a holding hand from banks to help them restructure. That experience of lending based on criteria other than asset-based metrics is vital.”

Lending hasn’t taken off yet

The map also tells you where the money actually is (and isn’t yet). Iraq’s banks have already banked one boom: After a November 2022 overhaul of cross-border transfer rules, the industry consolidated into a handful of lenders with real correspondent relationships — and the top banks’ businesses “started growing by more than 100% a year,” Tabaqchali says. That fee windfall is now narrowing as competition arrives, while lending — the real prize — is barely open.

Private-sector lending runs at a measly 13-14% of GDP. “Can you imagine if it becomes anything like the other Arab countries, like 60%, 70%?” Tabaqchali asks. “The big opportunity is lending, because that’s what banks are supposed to do.” The World Bank put Iraq’s GDP at USD 254 bn last year.

Where the playbook starts to fall apart

The map is most useful precisely where Iraq diverges from it, and three differences stand out. The first is cash. Egypt reformed under scarcity, which is what forced its banks to learn how to lend against a borrower’s cashflow, not assets. Iraq is oil-rich, and in a country with money the incentive runs the other way: A lender with plenty of liquidity, Abdel Aal notes, can simply demand hard collateral and wait, rather than do the harder work of underwriting a borrower’s cashflow. Asset-based lending is a rich country’s luxury, and the pressure that drove Cairo’s transformation runs weaker in Baghdad.

The second is who is doing the pushing. Egypt’s reform was a domestic project. Sure, it was shaped by the IMF and Basel accords, but it was led by a central bank with a credible reformer (Farouk El Okda) at the top and a team that believed in its mission of building a robust system. Iraq’s consolidation is being driven substantially from the outside — by US pressure on how the country clears cross-border transfers.

The third is timing, and the technology at each country’s disposal. Egypt had no fintech industry to work with in 2004, but Iraq has one at the starting line, along with AI, which could mean it skips steps Egypt had to take in sequence. Abdel Aal expects the shift to come slowly — and then all at once: “Once you plant the seed, the shift is very fast after that. It’s like a contagion.” His suggestion: Iraq might leapfrog, rather than replay, Egypt’s sequence.

None of this comes cheap: Iraq is on the FATF grey list — a rich-country instrument that loads heavier compliance onto any entrant. Meanwhile, a gap between the official and parallel exchange rates keeps arbitrage incentives alive. Any bank lending into this market cannot reliably seize collateral from a borrower that defaults. There isn’t a deep credit registry against which to price risk, and the struggle to hire expertise will bite — experienced bankers are few in number from the board level on down. And behind all of it sits the political risk of a state that, in Tabaqchali’s words, does not have a “full monopoly over violence.”

Tabaqchali’s answer to all of this is that the market already overcharges. His whole approach to Iraq rests on the distance between what the risk actually is and what outsiders assume it to be — “the perception of risk is much higher than the real risk,” he says — and the returns come as that gap narrows and asset prices catch up.

What does this mean for institutions that might be looking at Iraq? The fastest-looking route into the country — buying an existing bank for its license and ready-made book — is the one most fraught with peril. “The most dangerous due diligence is the credit portfolio,” Abdel Aal warns, describing balance sheets padded with phantom gold positions and fabricated corporate accounts. No amount of due diligence, Tabaqchali agrees, surfaces everything wrong with a bank until after you own it. The cleaner path, our sources say, is to build. Gunter’s counsel to any entrant is to “hire local representatives who do not have a background in the old Iraqi banking culture.”

What to watch for

The door to Iraq is being pushed open: JPMorgan is opening an outpost in Iraq to bank the American companies moving in — aimed at its own corporate clients more than at Iraqi retail banking, but a marker all the same. Once a name that size plants a flag in Baghdad, Abdel Aal expects the rest of the world’s banks to follow it in. The equity market is already running ahead of the fundamentals: The Rabee Securities index rose 44.8% in 2024 and 13.7% in 2025, outpacing regional peers, and “at the end of last year, it was up 224.5 % over a three-year period by the end of 2025,” Tabaqchali notes.

Amman, Doha, Kuwait, and Abu Dhabi are already in Iraq. The question now is whether Egyptian banks make their own moves — or see other lenders poach their staff to help build in Baghdad. The story to watch is the first major Egyptian bank to actually move — the moment Tabaqchali says he’s waiting for. “There’s nothing that happens in a country that doesn’t happen elsewhere. Nothing,” he says. “Imagine if you had a time machine, I’d go back to Egypt in 2006 and buy as many banks as I can and just sit on the money.”