Gulf Commercial Bank rating affirmed at CCC as capital and asset quality pressures persist

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Gulf Commercial Bank rating CCC

Highlights

Gulf Commercial Bank's Long-Term Issuer Default Rating affirmed at 'CCC' due to ongoing capital-raising delays and asset quality pressures, with extensions granted until end-2028.
GCB reported a net loss of IQD3 billion in 1H26 and faces continued losses through 2026 amid loss of the foreign-currency auction window and high operating costs.
Stage 3 loans stood at 85% at end-1H26 and end-2025 with only 61% coverage, while customer deposits fell 7% in 1H26 and 10% in 2025, highlighting ongoing asset quality and funding challenges.

Rating drivers and capital constraints

As reported by Fitch Ratings, Gulf Commercial Bank's Long-Term Issuer Default Rating has been affirmed at 'CCC' and its Viability Rating at 'ccc', with the assessment driven by the bank's standalone financial strength.

Fitch says the rating reflects GCB's inability to raise capital in line with Central Bank of Iraq requirements, alongside weak capital flexibility and limited support from ordinary shareholders. The central bank granted the lender three extensions, first to end-1Q25, then end-3Q25 and now to end-2028, while the bank says it has made progress in onboarding a foreign investor to support a capital increase.

Even so, uncertainty remains over whether GCB can meet the extended deadline. Fitch notes the bank's tangible leverage ratio stood at 63% at end-1H26, giving it some capacity to absorb losses, but says its view of capital is constrained by delays in raising capital, weak profitability and asset quality problems.

Business model weakness and sector impact

GCB's business profile remains weak and volatile because of its small market share, limited profitability and high related-party lending within a small loan book equal to 12% of total assets at end-1H26. Operating income, largely generated from fees, commissions and foreign-currency trading, was materially hit by the cancellation of the Central Bank of Iraq's foreign-currency auction window at end-2024 and by regulatory caps on transfers and cards introduced in 2025.

The bank reported a net loss of IQD3 billion in 1H26, compared with a loss of IQD1.4 billion a year earlier. Fitch expects losses to continue through 2026 as GCB struggles to establish U.S. correspondent banking relationships, adapt its business to non-U.S. dollar currencies and absorb high operating costs linked to the central bank's restructuring plan.

Fitch also highlights weak underwriting standards and risk controls, with Stage 3 loans at 85% at end-1H26 and end-2025, and total loss allowance coverage of those loans at 61%. Although the loan book is small and exposure to the Iraqi sovereign through placements at the central bank and government securities, equal to 30% of total assets in 1H26, provides some support for asset quality, Fitch expects loan quality to remain weak until related-party lending is addressed.

The broader operating environment in Iraq adds further pressure. Fitch says the Iran war, disruption to oil production and exports, fragile governance and heavy dependence on the oil sector are weighing on banks, and it expects Iraq's real GDP to contract by 5% in 2026. GCB's deposit franchise also remains weak, with customer deposits falling 7% in 1H26 and 10% in 2025 as clients shift to banks with U.S. correspondent banking links, though liquidity remains high enough to cover 151% of customer deposits.

In our earlier coverage of sovereign resilience under a higher-rate regime, we explained how persistent geopolitical tensions and elevated fiscal spending can push up refinancing risks and weaken credit profiles. We also noted that emerging and frontier markets are particularly exposed because debt-service costs tend to be high relative to narrower revenue bases, while energy and food price shocks can further strain inflation and public finances.

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