The Impact of Diversification Policy on the Risks of Commercial Bank: A Case Study of Iraqi Commercial Banks

Proceeding from the important and vital role that the banking sector plays in promoting economic growth, after which it is the lifeblood of economic activity, and in light of the close link between banking stability and the rotation of the wheel of the economy, as a result of the easy and rapid transfer of banking problems and disturbances to other economic institutions and society as a whole, the study sought to try to reach the importance of the diversification policy in Arab banks in general, and Iraqi banks in particular, and its role in providing a measure of protection against crises by reducing the risks that accompany banking work for the period 2010-2020 as one of the most serious and objective formulas to bring the banking sector to a level of stability capable of supporting other economic sectors and pushing forward growth rates and economic development. To achieve the foregoing, the study relied on the Balanced Panel Data analysis methods, which include estimating the model according to the aggregate regression methodology (PRM), the fixed effect (FEM), and the random effect (REM). The most important finding of the study is that the diversity of factors affecting the risks of Iraqi commercial banks in terms of the diversification policy as an independent variable and the controlling variables for the bank (bank size, income diversification, lending ratio, capital adequacy, efficiency of the bank’s activity) and their effects vary according to the indicator approved for expression regarding banking returns, in addition to the insignificance of the diversification variable in the models, the factors affecting the risks of Arab commercial banks varied in terms of including the diversification policy as an independent variable and the controlling variables for the state and the bank (bank size, income diversification, capital adequacy, lending strategy, ratio of Bank efficiency, inflation, and gross domestic product) and their effects vary according to the indicator approved for expressing banking risks in determining the levels of returns and risks of Iraqi commercial banks.