The Impact of Loan Portfolio Concentration on Financial Stability of Iraqi Commercial Banks

The current study aimed to measure the concentration level in the loan portfolio across economic sectors in Iraqi commercial banks and its impact on financial stability. The study analyzed data from nine banks for the period 2016 - 2022. We employed the Hirschman-Herfindahl Index to measure the concentration in the loan portfolio and the z-score value to measure financial stability. The robust multiple regression model was used to explore the effect of sectoral loan concentration on stability. The results indicated that, on average, the loan portfolios of Iraqi commercial banks are highly concentrated. This high concentration is attributed to these banks investing their funds in specific economic sectors such as trade, individual loans, and real estate. Additionally, the results revealed a positive and significant effect of concentration in the loan portfolio on the value of the z-score, suggesting that the sectoral loan concentration could enhance the financial stability of the Iraqi commercial banks. Based on study findings, it is recommended that Iraqi commercial banks be encouraged to increase the volume of funds allocated to lending activities, as lending represents a fundamental banking function that supports various economic sectors and contributes to achieving sustainable economic development in the country.