Analysis of the Credit Portfolio Concentration and the Tools to Limit Its Risks: An Applied Study on the Iraqi Commercial Banks (2010-2019)

Abstract

The study aims to identify the risks of banking concentration and the methods used to reduce the level of banking concentration in the credit portfolio in Iraqi commercial banks and to measure the degree of concentration using the Hirschman-Herfindal index. Concentration risk is one of the most important risks facing the bank’s management when granting loans and resulting from the concentration of the bank’s dealings with a single borrower, a particular economic sector, or certain geographic areas that are sensitive to single economic factors, which exposes the bank to significant losses. It was found that there is a general tendency of the Iraqi commercial banks to follow the policy of concentration in the credit portfolio (whether it is a sectoral concentration or a structural concentration, or a focus on the level of the five largest banks in the country) in order to achieve the greatest return regardless of the degree of risk to which the bank is exposed or may The study recommended the need to reduce the level of concentration in the credit portfolio of commercial banks and to diversify the portfolio to reduce the risk rate, in addition to encouraging competition between private commercial banks by creating appropriate conditions such as allowing government institutions to deposit with them because they have an important role in Enhancing the citizen's confidence in them and benefiting from the advanced banking services provided by private commercial banks.