Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

The Role of Accounting Information System in The Evaluation of Financial Performance Under Basel III: Empirical Analysis of Iraqi Banks

Zahra Hasan Oleiwi Accounting Department, Faculty of Administration and Economics, Mustansiriyah University, , Email- [email protected]

Abstract- The research aims to provide a theoretical framework on the role of the accounting information system in assessing the disclosure requirements of the Basel Committee and the stages of its development, the extent of their applicability in the Iraqi environment and the ability of Iraqi banks to adhere to them. And the extent of the impact of adherence to the main criteria touched upon by the decisions of Basel III, which are the ratio of capital adequacy, liquidity ratios, leverage ratio and its impact on the level of profitability. And the measurement of those standards in actual reality using the equations recommended by the committee, as well as the use of statistical methods (such as the Pearson coefficient) for a sample of banks listed on the Iraq Stock Exchange. The results show the ability of the accounting information system in Iraqi banks to meet the requirements of implementing the Basel standards represented in their new proportions. Likewise, there is an abundance of liquidity and capital in banks, the sample of the research has not been invested in a manner that reduces the severity of the economic recession and the revitalization of economic business units in a way that helps to establish a safe investment environment. The results also show that there is an inverse relationship between (capital adequacy, liquidity coverage, net stable financing and financial leverage) and the level of profitability. The new standards are considered important because they are able to penetrate into the depth of the banking structure and feel the weaknesses and strengths in its pivotal structure, which is represented in the banking capital, because of the existence of a structural link in all the standards recommended by the Basel Committee.

Keywords – Accounting Information system, Bank risks, Basel III, Iraqi Banks

I. INTRODUCTION There is no doubt that the financial crisis that surrounded the global economy has a major impact on the development of the Basel Committee for its standards, in addition to keeping pace with the various changes that occur in the structure of the economy in general. The nature, importance and impact of these changes on the financial and banking sector in particular. From this principle, the Basel Committee maintained its general structure, represented by its three pillars (capital adequacy, supervisory supervision, and market discipline). But the new Basel III is characterized by substantial additions to the strengthening of banking capital [1-2]. The reason for this is due to the effect of the bio as props for any sudden or periodic vibrations. It also developed two new ratios (liquidity ratio, which the committee divided into liquidity coverage ratio, which is a short-term ratio and the ratio of net stable financing, which is a long-term coverage ratio), in addition to the rate of dependence on others to finance its various activities, which is the percentage of leverage [3]. These ratios work together to support banking capital and enhance its capabilities, to be able to face any of the risks, whether regular or irregular. In order to achieve a decrease in the chances of default or bankruptcy, and these two percentages also work to capture the risks that the first percentage did not feel. The most important feature of Basel III is its introduction of bank capital or parts of it in all new ratios, directly or indirectly, and it has thus directed the spotlights directly to the solid core in the body of the banker. It is represented by his own financial capabilities and the size of his defense liquidity and his interactive policies with the financial markets and the economic environment. The importance of benefiting from international experiences and experiences to overcome the Iraqi banking sector its plight and achieve its desired vitality, it was hoped that it will apply the latest international standards regulating the banking sector to help it to integrate quickly, and achieve the maximum possible variety of facilities provided by it [4-5]. To mitigate the risks that surround it. To form with the prevailing national laws a container that can result in developmental leaps, and faster steps for development and harmony, to align them with the aspirations of society for this vital and influential feudalism. Accordingly, we have an important question: Are Iraqi banks able to implement the Basel III standards, which focused in most of its fundamental aspects on enhancing the banking capital, then does the application of the standard affect the level of profitability, which is a key factor in the development of business and the encouragement of investors and investment.

Volume XII, Issue II, 2020 Page No: 1528 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

II. LITERATURE REVIEW 2.1 Accounting information system and requirements of Basel III– The world has known financial crises since the beginnings of the seventeenth century, and they have recurred in a number of ways, leaving behind economic disasters and often threatening the world order [6]. All eyes were on the Basel Banking Supervision Committee. Moreover, its vital and effective role in being one of the most important organizations concerned with financial stability. As a result of criticism directed at the Basel Committee in that it sets the standards regulating the work of banks and the resultant commitment to them. From the impact on the bank’s work, competitiveness, and the inability of its Basel II standard to limit and mitigate its severity, as it sought to amend its Basel II standards and move to Basel III, as a result of that financial crisis that exploded in 2008, and its attempt to create a safe banking work environment. The financial crisis in 2008 may be one of the main reasons for Basel's elaboration and development of its standards. The financial crisis in general is a sudden and severe turmoil in some economic balances followed by collapses in a number of financial institutions that extend its effects to other sectors [7]. Al-Saabri defines it as the collapse of the financial system and the failure of financial institutions as a whole, with a sharp contraction of the overall economic system (Al-Saabri, 2012). Although some indications were indicating that a potential financial crisis existed, the Basel Committee or any other financial organization was unable to determine its timing, extent and impact. Financial analyzes revealed before the crisis that the volume of international real output amounted to about 60 trillion dollars, while the volume of transactions in financial assets and products amounted to 630 trillion, which is more than ten times the real output [8- 9-10]. Also, the decrease in liquidity rates in American banks as a result of raising the basic interest rate by the Federal Bank from 1% to more than 5% to address inflation in the American economy [11]. The turbulence of exchange rates for international currencies and withdrawing deposits with banks [12]. These were the primary and other indicators that foretold the world of the possibility of a financial crisis, which made financial and economic analysts work to determine the causes of that crisis after its occurrence and the most important reasons were as follows: 1. Excessive and excessive credit expansion: which negatively reflected on the economic cycle, and that credit granting operations took place on unscientific grounds, and the most dangerous of that is the knowledge of banks that borrowers are unable to repay, as well as the excess of interest that reaches 100%, and that this excess In lending, including real estate loans, whose owners were unable to pay and increased their market offer and led to lower prices [13]. 2. Weak supervision of banks and financial institutions, and financial institutions mean "banks, insurance companies, real estate finance companies, the capital market, securitization companies and other financial companies. There is no doubt that these financial institutions have an important and dangerous impact on the economy of any country, and despite this, the multiplicity of devices The control over the activities of the financial sector and the lack of coordination between them, its weak role in identifying the imbalances and abuses in the work of these institutions [14]. 3. Growth, breadth and excessive use of financial instruments: With the emergence of new and innovative financial tools with diversified uses such as financial derivatives and securitization, various types of diverse financial assets have been issued independently of the real economy and hence the seeds of financial crises began because of the disconnection between the financial economy and the real economy [15]. Financial derivatives are those new and diversified investment tools, named by this name because they are derived from traditional investment tools such as stocks and bonds, or related to real products or commodities [16]. The other and important type is securitization or securitization, and the word securitization refers to an Arabization of the English economic term (Securitization) which means making deferred debts in the hands of others a negotiable instrument in the financial market, and banking securitization is a new financial tool that benefits a financial institution mobilizing a group of debts Homogeneous and secured as assets, and put them in the form of one debt- enhanced credit and then presented to the public through a specialized facility to subscribe in the form of securities. To reduce the risks and to ensure the continuous flow of cash to the bank. Therefore, the term securitization consists in converting loans into marketable securities. Alhashel et al. (2018) indicate that the beginning of securitization in the American stock exchanges, and its purpose was to solve the problem of real estate housing loans, then it became a tool to meet the requirements of capital adequacy [17]. Based on the foregoing, the important and vital effect of securitization operations can be raised in raising the efficiency of the financial and production cycle and its turnover rate, by converting illiquid assets into liquid assets for re-employment again, facilitating the flow of financing for credit operations with mortgage guarantees. Reducing credit risk for assets by distributing financial risks to a broad base of different sectors. Which helps in achieving higher rates of capital adequacy, and here lies the main problem

Volume XII, Issue II, 2020 Page No: 1529 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

when exaggerating all kinds of debts that possess an integrated legal form but have an economic essence that is not real or economically unproductive, and thus cannot be adopted within the regulatory capital. Accordingly, if it is approved, this will be based on a capital adequacy ratio that is not real or does not represent the reality of the bank 4- The weakness or corruption of credit agencies and the increase in expectation gaps or corruption of accounting and auditing offices, that the agencies whose primary mission is to assess creditworthiness, corruption and bribery has spread to many of these agencies in the United States of America and some European countries, as the evaluation does not reflect the reality of creditworthiness For banks (investment and commercial), but the entire financial sector. It has generated serious repercussions on assets or property rights through classification of derivatives or securitization operations. On the level of audit firms, some audit firms have sought to reduce real expenditures and inflate revenues and then show fake profits, and the directors of these companies have benefited as a result of inflating their annual bonus and end-of-service remuneration at a time when they are indifferent to the losses incurred by shareholders and employees, as a result of corporate bankruptcy or falling prices Stocks on the stock exchange. The Basel Committee stressed in the pillar of the market discipline on disclosure, and the need to adopt accounting principles that are consistent with the market discipline in the disclosure of capital adequacy, and it is expected that the recognition of accounting disclosure and other mandatory aspects of disclosure will help in clarifying the requirements necessary for the validity of disclosure. As or to point out, it is not required that the external auditor review the disclosures according to the third pillar unless they require accounting standards or authorities [18]. Therefore, it can be said that the proper application of accounting standards reduces innovative accounting operations as well as reduces the expectations gap for users of financial statements. 2.2. Adoption Basel III And Bank Financial Performance The Iraqi banking industry faces multiple and varied challenges, both internal and external, such as weak regulatory framework, concentration of personal interests, weak experiences, lack of development of the private sector and its investment environment, expansion and steady growth of bureaucracy. Moreover, there is a large set of political, economic and security risks, which led to the Iraqi banking sector not growing rapidly and in a balanced manner. Basel III focused on the regulatory capital of banks and promised the cause of the financial crisis that surrounded the world in 2008 is a crisis of insufficient capital. Likewise, banks do not maintain short and long-term liquidity ratios and appropriate amounts of capital, as well as a high borrowing ratio when measured to the capital ratio. Consequently, the Basel Committee sought to establish restrictions aimed at the safety and continuity of the banks' operations, as well as keeping banks away from being one of the main causes of financial crises. These restrictions, in their singular or aggregated form, have an impact on the profitability of banks, that is, the extent of the bank's ability to create profit from its investments. 1- The relationship between capital adequacy and the level of profitability: The Basel Committee on International Banks put a difficult choice when it developed the concept of capital adequacy ratio, so the new concept came clearer and more intense than as components and inclusion of items in the capital adequacy equation. As the focus was on basic capital (the extension of the equation). And because it represents an important role in financial economic units when compared to non-financial projects. This is because non-financial projects whose assets were financed from the capital are the guarantor of the indebtedness, but in the financial projects, the capital is the first guarantee of the indebtedness of these institutions [19].He is also responsible for absorbing losses and strengthening the confidence of depositors and lenders, as well as regulatory authorities, of the bank's ability to withstand financial crises, whether domestic or international [20]. Adherence to an adequate adequacy ratio leads to mitigation of capital risk, which is defined as the probability of loss resulting from a decrease in the market value of assets compared to liabilities, or vice versa in the sense of higher market value of liabilities with a greater degree of increase in the market value of assets, according to the general rule of accounting balance, because total assets Equals the sum of both capital and liabilities, and therefore the value of the equity is equal to the total assets minus liabilities. According to this rule, we find that the risk of capital arises from two sources, the first is the increase in liabilities at a rate greater than the rate of increase in the right to ownership, and the second is the achievement of annual losses carried over from one year to the next [21]. It is noted that banks that own property rights equal to 15% of the assets, for example, can withstand a significant decrease in the value of the assets more than a bank that owns 8% of the assets as a property right. The process of commitment to the ratio of capital adequacy has positives as well as negative ones, as banks operate as a mediator between depositors (excess liquidity) and borrowers (the need for liquidity), against the profit resulting from this process. The commitment of a percentage of the capital adequacy, that is, keeping a penalty of the capital to cover the risky assets without use, and so the banks work to reduce investment and lending operations, i.e. an indirect reduction in the activities of the bank, and this affects the expected rates of return. The reduction in the capital adequacy ratio allows the bank to expand investments and loans in a manner that increases the level of profitability of the high return, which results in a higher

Volume XII, Issue II, 2020 Page No: 1530 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

risk ratio, since the relationship between return and risk is a direct relationship. Based on the foregoing, the relationship between capital adequacy and return is an inverse relationship, that is, the decrease in the adequacy ratio is the result of an increase in assets weighted by risks inside and outside the budget (investments) or a decrease in organizational capital to cover dangerous assets as a result of their increase, and thus all departments aspire to create A process of balancing the ratio of adequacy and risk to maximize profit. 2- The relationship between liquidity ratios and the level of profitability: The financial crisis has highlighted the importance of liquidity, which can be defined as the possibility of converting assets into cash as quickly as possible without incurring any losses when the bank is exposed to sudden demand or current dues, such as facing sudden withdrawals or demand for money in the event of crises, so banks usually maintain a specific rate Of its deposits are in the form of cash assets determined by laws and regulations [22]. Moreover, its direct impact on the ability of banks to provide credit, and thus on economic activity. This importance is concentrated with the increase in the severity of the crisis, high debt ratios, mismatch of maturity, and banks' attempts to liquidate their assets to face high and urgent withdrawals. This led to a decrease in assets and banks' loss of their capital and a lot of depositors ’money. Low liquidity was a key component in the transmission of liquidity shocks and risks. And since liquidity risks can be defined by the inability of banks to meet their obligations in the short term as a result of the lack of incoming cash flows represented by the amounts of deposits received and the inability to liquidate fast assets, compared to cash outflows from the bank and represented by the amounts required to pay liabilities in general and the processing costs (Abdel Latif, 2015: 181) from the banking sector to the real economy. The Basel Committee has developed two liquidity ratios for the purpose of hedging their risks.

A- Percentage of coverage: (It is the ability of the available liquidity to cover the various withdrawals in the short term a month or less) and from the equation below:

Liquidity coverage ratio = (High Liquid Asset Store (High Quality)/ Net cash outflows for a period of 30 days ≥ %100 (1)

We note that when analyzing the first ratio, the extension of the ratio depended on (the cash available in the bank’s treasuries, in central banks or with other banks, as well as on investments in securities issued by the state or whose risk weight is zero), and that this combination of assets is part of the usage . And that the uses in general are funded either from the capital of the first tranche or from the liabilities represented by deposits (funding sources) or a combination of both, according to the laws and instructions in effect or according to the instructions of the administration. We note that this percentage has been determined to be no less than (100%), and thus will be part of the high-quality liquidity that the bank management maintains periodically without use, i.e. keeping a portion of the capital indirectly without use (in the form of miscellaneous investments). That is, the bank reduces its investments, that is, not using all sources of financing, and this is reflected in the return. Thus, it can be concluded that a higher coverage ratio is a decrease in return. That is, the relationship between the coverage ratio and the return is an inverse relationship. In other words, the higher the liquidity utilization, the greater the risk and the greater the return on the liquidity coverage ratio. Therefore, the process of creating balance is one of the main issues for efficient management. In its third issue, the Basel Committee aims to develop an international liquidity standard or measure aimed at reducing risks in the short term. For the bank to be able to overcome crises of lack of liquidity or sudden demand for liquidity that affects the continuity of the bank first, and the failure of its collapse to affect the banking industry inside and outside its home

B- The ratio of net stable financing: which represents the bank’s ability to provide liquidity in the long term for a year or more. As for the second approach, which is the ratio of net stable financing, which represents and the second ratio, which is the bank’s ability to provide liquidity in the long term for a year or more, and through the ratio below: Ratio of net stable financing= (Amount of available stable financing)/ value of the required stable financing≥ %100 (2)

Looking at the components of this ratio, we note that the numerator has relied mainly on (organizational capital and borrowed money) which is the stable financing available. And the denominator of the ratio, which generally represents (loans and other miscellaneous assets that generate revenue, housing loans, and the contracted, which must be provided from liquidity) and which represents the required stable financing. A decrease in this ratio means an increase in the value of the denomination, i.e. an increase in the proportion of uncovered investments, and an increase in investments is an increase in the return, if the relationship between the ratio of net stable financing and the return can be inferred as an inverse relationship

Volume XII, Issue II, 2020 Page No: 1531 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

3- The relationship between the leverage ratio and the level of profitability: Financial leverage is property trading because of the presence of property funds and the willingness of creditors to lend to the project, property funds are a guarantee or safety element for creditors, and this is the ratio of total debt to total assets or total debt of the enterprise [23]. Leverage is also defined as the use of borrowed financing in a financial structure that maximizes return on equity [24]. In summary, on the above, this ratio measures the bank’s dependence on borrowing sources of financing, whether it is long or short-term in financing assets. There are a number of ratios, but the most important one is the following ratio, which can be measured through the equation below.

Leverage= Total Assets/ Total Liabilities (3)

The leverage calculated in this way is of great importance to the financial management, creditors and owners, as it is the ratio that determines the financial risks of the economic unit and its height leads to an increase in financial risks. The ratio shows us that each dinar of the assets has been funded from the liabilities, whether they are long or short term, and whether these liabilities are current deposits or savings or for a term, all of which constitute liabilities and obligations on the commercial bank. Basel III has developed a leverage ratio, as it has adopted a capital input in building its financial indicators, and that is why the leverage ratio came. Leverage has a correlation with the facility's financing structure, so the more the facility relies on external sources of financing, the higher the leverage, and the leverage becomes effective if the facility can invest the borrowed money at a rate higher than the cost of the borrowed money, and if the facility is unable to achieve this, it is exposed to significant risks and losses in the future, Which causes it to try to limit the financial leverage to reflect that negative on the business results. From this we note that there is a direct relationship between the increase of financial leverage based on liabilities to assets, and the high financial risks for commercial banks, which leads to higher returns [25]. It can be concluded that the relationship between the leverage based on (the basic capital (first tranche) / assets) to the return is an inverse relationship, because the relationship between (liabilities / assets) with the return is direct, as mentioned above, and the relationship between the liabilities and the capital of the first tranche It is an inverse relationship (the rise of one of them leads to a decrease of the other) and according to the equation above, hence the relationship between leverage according to Basel III is an inverse relationship with the return. One of the problems that generated the financial crisis is the excessive accumulation of debt inside and outside the budget, and when the financial crisis exploded, the banks decided to reduce the size of the borrowing, in order to provide the liquidity needed to meet them with rapid and urgent withdrawals of depositors, forcing the banking sector to sell the assets in its possession. This resulted from a sharp decline in the value of assets, and consequently to a decrease in banking capital and the resulting huge losses for the banking sector, as well as the sharp contraction in the provision of credit, which is the main source of bank financing, and that Basel III recommendations aim to hedge the borrowing rate for the purpose of control On the risks that result from it, and therefore Basel aims to determine the size of the swap between the return and the risk, on the basis of determining the size of the debt with a minimum (3%) of the capital of the first tranche / assets inside and outside the budget without weighing the risks. On the basis of the foregoing, we note the level of profitability that is affected adversely by the decisions of Basel III as a whole, as they are considered restrictions on the use of funds. Nevertheless, it is of great importance to maintain the bank’s continuity in its work and avoid the various risks that have aggregated into a financial crisis, and then the losses are greater at the level of the banking sector or other sectors. The big challenge for banks is to create a balanced dynamic between capital adequacy, liquidity and leverage, on the one hand, and the reduction of risks and raising the return on the other hand. And the limitations set by the Basel Committee in its three criteria largely achieve balance despite some negatives that may appear in the short term, which is to reduce the level of profitability, but it is established and in the long term the continuity of banks and maximizing the wealth of owners. A hedge of crises whose occurrence is more expensive may lead to failure money and bankruptcy.

II. DATA AND METHOD The paper relies on the descriptive method of dissolution as an appropriate method to address the research problem by interpreting the existing situation of the problem or phenomenon by relying on defining its circumstances and its dimensions and describing the relations between them, with the aim of ending to a complete integrated description of the problem under study by relying on data collected from different sources. The study population consists of private commercial banks registered in the Iraq Stock Exchange, which include 18 banks, while the study sample was approved 4 banks established with different time periods using the financial data for the period between 2016-2019.

Volume XII, Issue II, 2020 Page No: 1532 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

III. RESULTS AND DISCUSSION The table below shows a summary of the results of calculating the Basel indicators for the sample banks during the period 2016-2019. Table 1. Results Basel III indicators for research sample banks Variables The ratio Baghdad Middle East according to National Bank Bank Bank Bank Basel III

The average Capital adequacy 10.4% 102 32 52 73 Average liquidity coverage 100% 310 249 338 193 Average for stable net financing 100% 222 192 243 253 Average leverage 4% 0.41 0.14 0.28 0.32

Table (34) shows the results of the arithmetic mean for each of the basic variables and for each of the banks of the research sample, and compare them with the criterion set by the Basel III Committee, as well as the decision on the hypothesis for each of the four banks, which can accept or reject the hypothesis in the last part of the table. 1- Capital adequacy: The capital adequacy ratio has been measured according to the Basel III criterion, and it has been shown that the capital adequacy ratios for all the research sample banks are higher than what was approved in the standard, that is, the (regulatory) bank capital in Iraqi banks is of high quality because it consists in most of the capital Paid that was increased by the banks in the years (2016 and 2019) at the request of the to reach (250) billion dinars, and also that the percentage of dangerous assets, which represents the denominator of the ratio, is little compared to the capital, meaning that the banks of the research sample do not enter into dangerous investments , It reflects the nature of the Iraqi environment or the banks' view of the Iraqi environment as an environment It is dangerous, and so the Iraqi banks will be less able to create cash than the research sample, compared to the Basel III layer. The Basel Committee has sought to enhance bank capital by approving a capital adequacy ratio of 10.5% to be able to withstand the shocks resulting from financial crises. And that the Iraqi banks that were approved as a research sample had higher rates, meaning that Iraqi banks are able to enhance their capital or that it is sufficiently strengthened to apply the Basel III ratio to capital adequacy. 2- Liquidity coverage ratio The liquidity coverage ratio is a new ratio for Basel decisions, which can measure the ability of banks to face the risks of lack of liquidity ratios in banks and in the short term 30 days and less, and it is one of the ratios that support the capital adequacy ratio, and it has been found through measuring the liquidity coverage ratio that the coverage ratios for banks All of the research sample was higher than the minimum approved by the Basel Committee in its third criterion, meaning that Iraqi banks are able to cope with financial crises arising from a lack of liquidity, and also that capital ratios are high ratios that were able to enhance liquidity ratios, as the sources of financing represented Property rights and other liabilities Which correspond to the uses of the bank in the budget equation, shows that the proportion of the sources of funding the rest without the use represented in the form of criticism of high quality that came all the banks ratios higher than 100%, the percentage approved, meaning that Iraqi banks are able to cover all requests fast liquidity easily. This is because bank capital is sufficiently strengthened 3- The ratio of net available financing It is one of the new ratios developed by Basel III, and it is the second supportive ratio for the capital adequacy ratio, which measures the ability of long-term sources of financing for one year and more to meet the overall long- term uses, and this ratio with the liquidity coverage ratio represents a defensive line to confront the risks of lack of liquidity, as well as it is Depends on the percentage of its rise and decline on the size of the bank’s (regulatory) capital of the bank, table No. (27) showed that Iraqi banks enjoy higher rates than the ones established in Basel III decisions, amounting to (100%) 4- Leverage: The leverage ratio represents one of the new elements mentioned by the Basel ratio, this ratio is an important aspect that reflects the size of the bank's dependence on borrowing and is represented by current and fixed deposits,

Volume XII, Issue II, 2020 Page No: 1533 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

and the amount of capital invested in the bank, which works together in creating the bank's assets, the results have shown that banks Iraq has used its capital at a higher rate than stated in the Basel III standards, which have a minimum of (3%), meaning that for every 3 monetary units of bank capital, they cover 100 monetary units for assets not weighted by risk. Through the foregoing, it is clear that Iraqi banks are able to enhance their capital and implement Basel decisions smoothly. The researcher believes that the high percentages of all independent variables and the total banks of the research sample, which exceeded the ratios of the ratios of Basel III decisions show us that the deposit rates are generally low in Iraqi banks, and that the size of the capital exceeds the need for it, or that the investment environment is dangerous or that it does not have the required level of Ingredients for investment, or that banks rely on less risky methods to achieve their profits, such as currency auctions, or inefficiency of management Table 2. Correlation coefficients between Basel and performance Variables Pearson Relationship Relationship Relationship correlation Sig Effect type sign type strength coefficient

Capital adequacy Inverse Medium Not significant 0.332 0.212 - Liquidity coverage Inverse Weak Not significant ratio 0.188 0.482 - Net stable financing Inverse Weak Not significant 0.237 0.378 - Leverage ratio Inverse Strong significant 0.586 0.018 -

Table (2) shows the results of each of the value of the Pearson correlation coefficient, the degree of significance, relationship indication, relationship type, relationship strength, influence type, and results at each level of the level of banks to enable acceptance or rejection of the results of analyzes for each bank. Capital adequacy ratio, as the value of the correlation coefficient Pearson (0.331) appears with a negative signal, meaning that the relationship type has a negative intermediate strength, and the degree of significance is (0.211) which is greater than (0.05), thus the hypothesis was rejected. The second variable is the liquidity coverage ratio, as the value of the Pearson correlation coefficient (0.189) has a negative signal, meaning that the relationship type is inversely weak, and the degree of significance is (0.484) which is greater than (0.05), thus the hypothesis was rejected. The third variable is net stable financing, as the value of the Pearson correlation coefficient (0.236) shows a negative signal, meaning that the type of relationship is inversely weak, and the degree of significance is (0.379) which is greater than (0.05), thus the hypothesis was rejected. The fourth variable is the leverage ratio, as the value of the Pearson correlation coefficient (0.585) has a negative signal, meaning that the relationship type is strong and inversely, and the degree of significance is (0.017), which is less than (0.05), thus the hypothesis was accepted. The author believes that the nature of the relationship between the independent and dependent variable is, in its entirety, inverse relationships, but its significance has not been proven, due to the presence of a clear dispersion of the sample variables in the levels of profitability from one year to the next, as well as the difference in the size of the capital as the increases in capital were not at the level of need for it Rather, it was based on the imposition of the regulatory authorities, as the rate of increase reached more than 50% between the year and the year that followed, in all the research sample banks. IV.CONCLUSION

Accounting information systems and instructions issued by government and regulatory agencies are the cornerstone for the advancement of banking business, through the availability of safety for depositors and the reduction of risks, but their multiplicity and expansion during subsequent periods of time creates inconsistency with international standards, as it can be noted that the criteria used to calculate the head adequacy ratio The money was based on Basel I standards. The capital of Iraqi banks is greatly enhanced, not commensurate with the size of the activity they undertake, or is not commensurate with the size of the investment environment that looks relatively large, and therefore does not match the level of profits that it achieves. The Basel Committee adopted in its new standards, which the financial crisis in 2008 had a significant impact on its emergence, on focusing mainly on banking capital since it entered this ratio in all of its criteria, directly or indirectly, which is represented in (capital adequacy, and the ratio of liquidity coverage, And net stable financing, and leverage), and thus the criteria came to enhance bank capital, as a result of the exposure of many banks and their exposure to default and bankruptcy. The capital adequacy, even if it is a high percentage in Iraqi banks, is not alone enough to achieve banking safety, but it requires the availability of liquidity, and the reasonableness of the leverage ratio, hence the Basel III committee developed two additional criteria represented in the ratio of liquidity and leverage, and the Basel Committee believes that the compatibility Between these ratios and their balance, the financial sector in general and the banking sector in particular are avoided for financial crises that are prohibitively expensive in a way that leads to bankruptcy, as well as

Volume XII, Issue II, 2020 Page No: 1534 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

being very expensive economically, politically and even socially when these crises move to other real sectors. The possibility of implementing Basel III decisions by Iraqi banks because of the strength of their banking capital, as all capital adequacy ratios were higher than the standard proposed in Basel III. Moreover, a percentage of the hedge capital was not calculated by the Iraqi banks, which amounted to (2.5%), which was recommended by the Basel Committee, but that does not hinder the application of sufficiency ratios because the ratio is much higher than the standard required by the committee, meaning that Iraqi banks do not It needs to increase its capital by 2.5%. It can be deducted without increasing the capital. This percentage is extremely important in that it is a precautionary ratio to cover the various risks, and it is also a clear percentage from disclosure in the financial statements. The extent of the reserve opposite to the economic cycle (imposed when needed by the supervisory authority) has not been calculated by the Iraqi banks, but this does not hinder the application of sufficiency ratios because the ratio is much higher than the standard required by the committee. The liquidity coverage ratios in the Iraqi banks are more than the ratios established according to the Basel III standard and this indicates the possibility of applying the Basel decisions with ease, if the Iraqi banking sector begins to apply them, and also indicates that the short-term coverage capacity is high. The net stable financing ratios for all the research sample banks are higher than the ratios approved by Basel III as a minimum. Whereas the leverage ratio in all the research sample banks exceeded the ratios established in Basel III, and this indicates that the volume of deposits in Iraqi banks is relatively small, if compared to the ratios approved by the Basel Committee and its applications at the international level. The results show that there is an inverse relationship in (capital adequacy, liquidity coverage, and stable net financing) with the ratio of the level of profitability. And that this relationship did not prove its statistical significance. There is also an inverse relationship between the leverage ratio and the level of profitability, and it is statistically significant. The new standards are of the utmost importance that they are able to penetrate into the depth of the banking structure and feel the weaknesses and strengths in its pivotal structure, which is represented in the organizational capital, because of the structural interconnection between each of the standards recommended by the Basel Committee, capable of achieving this exposure. The effectiveness of the new standards is to sense the banks ’ability to continue, and to predict early the possibility of default, which leaves room and time for the bank’s management to adopt new and effective policies in the face of any of the defaulting situation. The Basel Committee alerted to new risks surrounding the banking sector, which are the risks of concentration, reputational risks, risks of higher incentives, bond risks and other new risks. REFERENCES [1] Haynes, R., McPhail, L., & Zhu, H. (2018). Assessing the impact of the Basel III leverage ratio on the competitive Landscape of US Derivatives Markets: Evidence from Options. Available at SSRN 3378619. [2] Ali, M. N., Hameedi, K. S. & Almagtome, A. H. (2019). Does Sustainability Reporting via Accounting Information System Influence Investment Decisions in Iraq?. International Journal of Innovation, Creativity and Change, 9 (9), 294-312. [3] Rossignolo, A. F. (2020). Basel 3.5 vs. Basel III: a radical overhaul of the capital requirements pillar. The case of commodity exposures. International Journal of Banking, Accounting and Finance, 11(1), 1-34. [4] Nkwaira, C., & Kruger, J. W. (2018). Using Risk-Weighted Assets to Generate Risk-Weighted Fees to Counter the Effects of Basel III on Revenue Generation. Journal of Finance, 6(2), 48-54. [5] Al-Wattar, Y. M., Almagtome, A. H. & AL-Shafeay, K. M. (2019). The role of integrating hotel sustainability reporting practices into an Accounting Information System to enhance Hotel Financial Performance: Evidence from Iraq, African Journal of Hospitality, Tourism and Leisure, 8 (5), 1-16. [6] Amusawi, E. G., Almagtome, A. H. & Ameer, S. S. (2019). Impact of Lean Accounting Information on The Financial performance of the Healthcare Institutions: A Case study, Journal of Engineering and Applied Sciences, 14(2), 589-399. [7] Chauffour, J. P., & Malouche, M. (Eds.). (2011). Trade finance during the great trade collapse. The World Bank. [8] Nallareddy, S., & Ogneva, M. (2017). Predicting restatements in macroeconomic indicators using accounting information. The Accounting Review, 92(2), 151-182. [9] Hong, H., Huang, J. Z., & Wu, D. (2014). The information content of Basel III liquidity risk measures. Journal of Financial Stability, 15, 91-111. [10] Khaghaany, M., Kbelah, S., & Almagtome, A. (2019). Value relevance of sustainability reporting under an accounting information system: Evidence from the tourism industry, African Journal of Hospitality, Tourism and Leisure, 8 (Special Edition CUT), 1-12. [11] Ferreira, C., Jenkinson, N., & Wilson, C. (2019). From Basel I to Basel III: sequencing implementation in developing economies. International Monetary Fund. [12] Cummings, J., & Guo, Y. (2018). Effectiveness of the Basel III bail-in framework: Evidence from the hybrid security market. Working Paper, 16.01. 2018, 1–35. [13] Almagtome, A. H., Ameer, S. S., Al-Fatlawi, Q. & Bekheet, H. (2019). The Integration between Financial Sustainability and Accountability in Higher Education Institutions: An Exploratory Case Study, International Journal of Innovation, Creativity and Change, 8 (2), 202-221. [14] Naceur, S. B., Marton, K., & Roulet, C. (2018). Basel III and bank-lending: Evidence from the United States and Europe. Journal of Financial Stability, 39, 1-27. [15] Taskinsoy, J. (2017). The cost impact of Basel III across ASEAN-5: Macro stress testing of Malaysia’s banking sector. Available at SSRN 3274994.

Volume XII, Issue II, 2020 Page No: 1535 Journal of Xi'an University of Architecture & Technology Issn No : 1006-7930

[16] Kbelah, S. I., Amusawi, E. G. & Almagtome, A. H. (2019). Using Resource Consumption Accounting for Improving the Competitive Advantage in Textile Industry, Journal of Engineering and Applied Sciences, 14(2), 575-382. [17] Alhashel, B. S., Almudhaf, F. W., & Hansz, J. A. (2018). Can technical analysis generate superior returns in securitized property markets? Evidence from East Asia markets. Pacific-Basin Finance Journal, 47, 92-108. [18] Ali, M. N., Almagtome, A. H. & Hameedi, K. S. (2019). Impact of accounting earnings quality on the going-concern in the Iraqi tourism firms, African Journal of Hospitality, Tourism and Leisure, 8 (5), 1-12. [19] Ruggeri, D., Leotta, A., & Rizza, C. (2018). The Bank Lending Process: Accounting Information Role in Constructing Realities or Illusions. International Journal of Business and Management, 13(2), 53-64. [20] Osho, A. E., & Moronkeji, T. A. (2018). Usefulness of Accounting Theory and Practices on Banking Sectors in Nigeria: Empirical Evidence from Basel Accord. Research Journal of Finance and Accounting. United Kingdom. www. iiste. org ISSN, 2222-1697. [21] Laux, C. (2016). The economic consequences of extending the use of fair value accounting in regulatory capital calculations: A discussion. Journal of Accounting and Economics, 62(2-3), 204-208. [22] Eldomiaty, T. I., Bahie Eldin, A., & Azzam, I. (2016). Determinants of Capital Adequacy Ratios Under Basel III: Stress Testing and Sensitivity Analysis on Egyptian Banks. Available at SSRN 2788482. [23] Hendricks, B. E., Neilson, J. J., Shakespeare, C., & Williams, C. D. (2019). Financial Reporting and Operational Decisions in Response to Proposed Regulation: Evidence from Basel III. Ross School of Business Paper, (1213). [24] Bunea, M., & Dinu, V. (2019). The BASEL III impact on the Romanian Banks's Solvency. Montenegrin Journal of Economics, 15(1), 189- 198. [25] Sánchez, I. D. (2017). Los tres pilares de Basilea ii y la calidad de la información contable de la banca a escala mundial/the three pillars of Basel II and the quality of accounting information in worldwide banks (Doctoral dissertation, Universidad de Murcia).

Volume XII, Issue II, 2020 Page No: 1536