This study aims to analyze the impact of international financing—represented by foreign direct investment (FDI), international aid, and external loans—on selected indicators of the banking sector in Iraq. The analysis is conducted using the Autoregressive Distributed Lag (ARDL) model over the study period. The importance of this research lies in evaluating the effectiveness of external funding sources in supporting the financial sector and contributing to monetary stability under Iraq’s ongoing economic challenges. The results indicate a statistically significant positive relationship between FDI and both credit to the private sector and private deposits in the long run. This highlights the role of FDI in promoting banking sector growth and financial stability. In contrast, international aid exhibited a limited positive effect in the short run, with no significant impact in the long run. External loans were found to have negative effects on certain banking indicators, particularly in the short term, raising concerns about their contribution to financial stability. The study concludes that strengthening foreign direct investment is a strategic option for developing Iraq’s banking sector. Conversely, overreliance on external loans may undermine the efficiency of the financial system. Accordingly, the study recommends adopting balanced economic policies that focus on attracting productive foreign capital, enhancing the effective use of aid, and minimizing the adverse effects of foreign borrowing—all aligned with Iraq’s goals for economic growth and financial stability.