The Impact of Adopting Artificial Intelligence on the Performance of Banks in Iraq: An Econometric Analysis Using Panel Data for The Period (2015-2024)

Abstract

This study analyses the impact of AI adoption on the profitability of commercial banks in Iraq, in the context of a post-conflict emerging economy, addressing a clear research gap in the banking literature. The study used balanced panel data from 15 Iraqi banks for 2015–2024, totalling 150 bank-year observations. A comprehensive AI adoption index was developed, reflecting the extent, breadth, and depth of AI integration across customer service, risk management, and operational processes. The study employed pooled regression models and a fixed-effects model with robust pooled standard errors to measure the impact of AI adoption on bank profitability, as measured by return on assets (ROA) and return on equity (ROE), while controlling for traditional determinants of profitability and macroeconomic shocks. The results showed a strong and significant positive impact of AI adoption on bank profitability. The fixed-effects model estimates that a one-unit increase in the AI ​​adoption index raises return on assets by approximately 1.80 percentage points and return on equity by approximately 14.65 percentage points, at a high statistical significance level. These results remained robust even after accounting for fixed-time effects, reflecting the many shocks such as the COVID-19 pandemic. The study concludes that AI is an effective tool for enhancing banking performance, even in fragile institutional environments. This supports the hypothesis of technological leaps in post-conflict economies and provides important insights for policymakers and bank management regarding technology investment priorities.