The Role of Financial Soundness Indicators in Assessing Banking Financial Stability: An Analytical Study of the Iraqi Banking Sector

Abstract

The study aimed to provide a conceptual overview of Financial Soundness Indicators (FSIs) and their use in assessing banking financial stability, with the goal of detecting imbalances at an early stage, highlighting positive aspects, supporting reinforcement efforts, and ultimately achieving a sound banking system that safeguards the rights of depositors and investors. The analytical method was employed through the use of FSIs for the period (Q4 2015–Q3 2024). The study was conducted on the Iraqi banking sector and concluded that the FSIs of the Iraqi banking sector offer valuable insights into the stability and soundness of the country’s financial institutions, as they provide key information about these institutions. This has led to their significant incorporation into financial supervision and stability systems. The study recommended working towards stabilizing the financial positions of banks by ensuring effective management that seeks to balance objectives related to profitability, liquidity, and security. Banks should maintain a minimum level of liquidity sufficient to meet obligations while channeling the remaining funds into investment opportunities that yield high returns with minimal risk.