06-03-2025
Tabaqchali: Banks End a Second Year with a Bang
By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Banks End a Second Year with a Bang
The market, as measured by the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), continued with the process of consolidating its gains that started in December, following a blistering 35.9% rally since late August, and spent the month, just as the prior month, in a tight range of + 1.8% and -0.8% around its prior month's close, closing the month flat. It is down 1.4% for the first two months of 2025, up 44.8% in 2024, and up 97.2% in 2023.
While this consolidation could continue over the next few weeks, the market's technical picture continues to be positive, and the likely consolidation or pullback should be within its multi-month uptrend as much as the prior consolidations and pullbacks have done over the prior months. Trading volumes continue to support this thesis, as the average daily turnover for the month followed the patterns discussed last month in "Trading Volumes Support Market's Uptrend" (chart below, adjusted for block trades*).
Rabee Securities U.S. Dollar Equity Index vs Daily Turnover
(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, daily data as of February 27th)
For the second year in a row, the top banks in the country reported outstanding net profit and equity growth in 2024, building upon a similarly outstanding growth in 2023 as reported last year in "Banks End the Year with a Bang".
Year-over-Year Comparisons
(Source: Rabee Securities, AFC Research, data as of Q4/2024)
(Note: Numbers rounded up for ease of display, while percentage changes are of actual numbers)
As discussed in "What Next After Two Gangbuster Years?", the growth of bank net profit and equity growth in 2025 will be from a much higher base, and the acceleration should slow down from the heady rates of the past two years, leading to a new normal for the group. In this new normal, the future growth trajectories of the top banks will be from a much higher base and from a significantly improved financial position. Moreover, this new normal will be marked by an increased adoption of banking and formality, coupled with a move away from the dominance of cash and informality -developments that the investment thesis for the banking sector contends would come with growth in bank lending, resulting in an expansion of the money circulating in the economy and consequently to a meaningful increase in non-oil GDP (**). Over time, this should support the growth in top banks' net profits and ultimately feed into higher stock market valuations -driven by net-profit growth and by the increases in market multiples placed upon these net profits.
The equity market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), having surpassed its 2014 peak by 5.4% by the end of February, has the potential to rally further reflecting the powerful dynamics discussed here over the last few months. However, significant risks remain given Iraq's recent history of conflict, extreme leverage to volatile oil prices, as well as the risk that the widening of the current Middle East conflict will not be contained and evolve to destabilise the region -even though the temporary ceasefire in Gaza, Lebanon and the developments in Syria lowered the likelihood of a widening, yet risks remain that these will not hold or that other negative developments take place.
Notes:
(*) Daily market turnover is first adjusted by removing the block, pre-arranged trades conducted during the special session following the regular trading session; subsequently, it is adjusted further by removing high-volume trades during regular market hours that show a pattern consistent with those of pre-arranged trades. High-volume trades are defined as those that are significantly higher than a given stock's average daily turnover; and as such are subjective. Moreover, trading volumes, and trading turnovers are used interchangeably here, and defined as the values of trading turnovers in Iraqi Dinars (IQD).
(**) Banking and the banking investment thesis were reviewed in:
Please click here to download Ahmed Tabaqchali's full report in pdf format.
Mr Tabaqchali (@AMTabaqchali) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council.
His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
