Analysis of the financial stability of Islamic banks in the Kurdistan Region of Iraq for the period (2010–2023) using the Z-Score model

Abstract

The research aims to analyze the financial stability of a sample of Islamic banks operating in the Kurdistan region of Iraq for the period (2010–2023), using the Z-Score model as a key indicator to measure financial soundness. The research sample consisted of five major Islamic banks, representing an important part of the banking sector in the region. The study adopted an applied analytical methodology, collecting financial data from the banks’ annual reports and the Central Bank of Iraq. The Z-score was calculated for each bank to measure its distance from the risk of insolvency. The results showed that the five banks achieved strong financial stability during most years of the study, as their Z-Score values exceeded the safe limit (2.99), reflecting the efficiency of risk management policies and capital enhancement. However, some fluctuations in the performance of certain banks were observed, especially in the years that experienced economic volatility. The main conclusions of the research are that Islamic banks in the region enjoy financial flexibility that enables them to face challenges, thanks to their commitment to banking regulations and Islamic financing methods based on profit and loss sharing. The research also recommended the need to enhance internal control, adopt early warning systems to predict risks, and continue to improve asset quality to ensure the sustainability of financial stability.