The Impact of Foreign Currency Auction Proceeds on Bank Profitability: A Study of a Sample of Iraqi Islamic Banks

The current This study aims to analyze the relationship between income diversification and profitability in Islamic banks, focusing on measuring the impact of returns generated by the foreign exchange auction—known as the "currency sale window," supervised by the Central Bank of Iraq—on the net profitability of a selected group of ten Islamic banks operating in Iraq, during the period from 2016 to 2023. An unbalanced panel data model was employed for quantitative analysis, given the nature of the available data and the unequal number of observations per bank over the years. The study concluded that revenues from conventional banking transactions, particularly fees and commissions from the provision of various banking services, are the most influential factor in determining net profit. This indicates a growing trend among Islamic banks toward relying on income sources that are neither Sharia-compliant nor independent of the conventional model. The results also revealed that returns from the currency sale window contribute a relatively high percentage to profit generation, outperforming revenues from Islamic investment activities, which ranked last in terms of relative priority and impact. This raises questions about the extent to which some Islamic banks are committed to their basic developmental and Sharia-compliant roles.