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 to Fuel the Market's Next PhaseThe market, as measured by the Rabee Securities RSISX USD Index, was up 16.3% for the month and up 65.5% for the year.As argued here over the last few months, most recently in "Market Rallies as it Begins to Discount the Budget's Passage", that the 2023-5 budget following its passage in June would lead to sizeable liquidity injections into the economy.This in combination with the positive global macro-economic developments, will drive economic growth that would eventually feed into meaningful growth in corporate profits, which in turn would sustain the market's current rally. The banking sector, in particular the top-quality banks, are likely to be key beneficiaries of this emerging economic growth that would come with an increased adoption of banking, and a move away from the dominance of cash as both a store of value and a means of economic exchange.The thrust of AFC Iraq Fund investment thesis for the banking sector, as discussed in "Banks & the Iraq Investment Thesis" in February 2022, is that increased adoption of banking would come with growth in bank lending resulting in an expansion in the money circulating in the economy and consequently to an increase in non-oil GDP. Over time, banks' earnings should grow substantially, leading to meaningful increases in their valuations, and ultimately feed into much higher market multiples.This thesis is getting a substantial boost from a potent combination of recent fundamental and technical developments, that promises to accelerate the adoption of banking, and bring about a transformation of the sector and its role in the economy. Such a transformation should lead to a sustainable strong earnings growth, particularly for the top-quality banks, which would provide the fuel for the stock market's next phase.The recent fundamental developments have come about as a consequence of the currency's upheavals, following the Central Bank of Iraq's (CBI) new procedural requirements for its provisioning of U.S. dollars (USD) for importers in mid-November 2022. In the ensuing months, the CBI introduced a raft of measures to further regulate cross-border transfers, accelerate the adoption of banking, and strengthen the banking system - all of which have led to meaningful increases in new banking customers, growth in deposits and loan books, that have disproportionally benefited the top-quality banks (*).While more time is needed for these developments to shape these banks' future earnings profiles as they adapt their strategies and infrastructures, nevertheless, a glimpse of an emerging strong earnings profile can be had from the just-released second quarter earnings for 2023. The tables below feature four of the top-quality banks, of which three are among the top constituents of the RSISX USD Index (**). The tables compare selected balance sheet and income statement metrics for the second quarter of 2023 versus the first quarter to highlight the near-term changes as the CBI's measures came into effect; and versus the second quarter of the prior year to highlight the scale of these changes. (ICE AMMAN)

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