IslamicFinance.de

In Iran, concerns are growing that banks may be facing the fate of credit and financial institutions (CFIs) that are on the verge of collapse. The Central Bank of Iran (CBI) is under rising pressure from the parliament to immediately regulate these nonbank credit institutions, as an increasing number of depositors protest delays. Now, there are fears that banks could be next. To avoid this scenario, pundits are suggesting that the CBI be granted more autonomy by the parliament so that it will take more serious disciplinary measures. The administration of President Hassan Rouhani has been trying to pass the bill in the parliament, but certain influential bodies have blocked the legislation. The huge government debt is putting excessive pressure on the banking system, but the Iranian public still trusts banks, even as many CFIs have collapsed.

The Central Bank of Iran has released the names of 40 registered banks and credit institutions active in the country, which include the names of five foreign banks. The only five foreign lenders licensed to operate in Iran are the Hamburg-based Iranian-European Bank, Standard Chartered, Iran-Venezuela Bi-National Bank, Islamic Cooperation Investment Bank and Future Bank. The Iranian-European Bank has a German license, but is owned by the Iranian state. Standard Chartered is a British multinational banking company headquartered in London. It operates a network of more than 1,200 branches across more than 70 countries. Iran-Venezuela Bank a joint venture between Banco Industrial de Venezuela and the Export Development Bank of Iran. However, Iran is planning to sell some of its shares in IVBB, as the two countries currently have no commercial relations. The Islamic Cooperation Investment Bank is an Iraqi private lender, which currently has 11 branches in Iran. Future Bank is a fully commercial lender approved by the Central Bank of Bahrain, its branch in Iran is located in the Kish Free Trade Zone.

A delegation from the Central Bank of Turkey will soon meet their Iranian counterparts in Tehran to remove hurdles in the way of bilateral banking relations. Particular difficulties include Iranian citizens' bank accounts in the Turkish Halkbank. The banking ties were overshadowed by the detention of a senior Halkbank official in the US in March for allegedly violating Iran sanctions. Mehmet Hakan Atilla was accused of conspiring with Reza Zarrab, an Iranian-Turkish gold trader, to channel hundreds of millions of dollars through the US financial system on behalf of Iranian companies. Turkish Minister of Economy Nihat Zeybekci is also scheduled to visit Iran on June 21 to negotiate a preferential trade agreement between the two sides.

Bank Melli Iran (BMI) is planning to overhaul its European branches after clearing the procedures both inside the country and abroad. BMI's director for Foreign Exchange, Gholamreza Panahi, said the bank held negotiations with European officials to enhance its presence in the continent. He added that the bank's Najaf branch in Iraq is also ready to launch and expand the bank's network in East Asia. Panahi said BMI established correspondent relations with 25 foreign banks, which means connecting to a banking network that makes it possible to benefit from their wide range of services. The official also said BMI was the first Iranian bank to be reconnected to Swift, the international interbank messaging network, after the sanctions were lifted in January last year.

The Iranian Ministry of Economy has published the details of letters of credit (L/Cs) that Iranian banks allocated over the past few years. The country’s international trade picked up considerable pace when the sanctions against Iran were lifted. According to the ministry’s report, Bank Melli Iran allocated 154 letters of credit worth $42.71 million over a four-year period (2013-16). During 2013-16, Bank Keshavarzi opened 19,253 L/Cs worth over $10.5 billion. It also played an important role in issuing 21 bank guarantees valued at $15 million. Bank Mellat also issued 32 export guarantees worth $15.4 million and four import guarantees worth $13.5 million. Export Development Bank of Iran opened 550 L/Cs and issued more than 1,750 bank guarantees during 2013-15 to emerge as one of the main forces in the Iranian economy.

ZPay, a payment application for foreign tourists in Iran, has won Bank Pasargad Iran’s award for best fintech innovation at the First Fintech Festival. ZPay enables foreigners to shop in Iran while keeping their money outside the country. Iran is doing much to improve its fintech standing. Earlier this month, it was reported that Iran had launched a FinTech Association to push for further development. And yet, while the capital Tehran is home to a growing number of local fintech startups, Iran still has a long way to go before it can be considered a fintech hub.

On Feb. 26 the Iranian government got the parliament approval to sell a total of 10 trillion rials ($308 million) worth of excess properties owned by its ministries. The raised money is expected to help shore up the troubled Post Bank of Iran and the Cooperative Development Bank. According to economic newspaper Donya-e Eqtesad, toxic assets account for 40-45% of total banking assets in the country. Nearly 15% of these assets consist of immovable assets such as land and buildings. The rest consists of nonperforming loans and government debt. The sale of at least 33% of the surplus assets could have taken place in the fiscal year running to March 20, but banks eventually decided to find a legal way to postpone the sale process. Real estate expert Farhad Beizaei accused banks of wasting time so that they can sell properties at higher prices next year.

Governor of the Central Bank of Iran (CBI) Valiollah Seif said the country plans to establish a bank in Azerbaijan with 100% Iranian ownership. The plan involves turning a branch of Bank Melli Iran in Azerbaijan into an independent Azerbaijani bank. Seif added that all the shares of the new bank will be owned by Bank Melli Iran and that the details would be discussed next week during the visit of the Azerbaijani delegation to Tehran. Seif emphasized that certain plans were on agenda for Iran and Azerbaijan to use their national currencies in mutual transactions. Currently 32 banks operate in Azerbaijan and 36 banks operate in Iran.

The National Development Fund of Iran (NDFI) plans to make investments in international money and financial markets. According to the fund's director, Ahmad Doust-Hosseini, the fund is also ready to support foreign investors as well as Iranian exporters by extending loans. Doust-Hosseini said from the next Iranian year (March 21, 2017), 30% of revenues from the sale of oil, gas and their related products will be deposited with the NDFI. He added that the fund belongs to the private sector and non-government enterprises, so state-owned entities will not receive any loans. Ali Salehabadi, CEO of the Export Development Bank of Iran (EBDI), said his bank will allocate working capital to export projects in the form of foreign exchange and rial loans in partnership with NDFI.

Banks in Iran have made progress since the signing of the nuclear deal, yet many obstacles to doing business internationally remain. The deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), was meant to free up Iran’s economy and banking sector by lifting the sanctions imposed on the country in exchange for curbs on Iran’s nuclear programme. Under the nuclear sanctions, the US fined several big banks for dealing with sanctioned countries. For that reason, many large international banks fear being fined again if they re-engage with the country, even though they are now allowed to do so under the terms of the JCPOA. So far, only small banks have been willing to re-engage with Iran.

For Islamic banking, the opening up of Iran is a huge development, as Iranian banks make up the world’s largest financial system based on Islamic law. A large number of sukuk and other Islamic securities from Iran are expected over the next few years. Estimations are that there are over 150 Iranian companies considering Islamic sukuk sales. Iran also requires funds for its infrastructure development programs estimated at around $1 trillion over the next decade, according to a report published by Forbes. Islamic banks in the region are building their activities in key sectors of the economy. Retail banking has traditionally been the mainstay of Islamic banking in the region. Here, investment in digital and smartphone banking will be crucial in future.

Iranian insurance firms generated 21.7 trillion rials ($525.9 million at market exchange rate) from selling life policies during the eight months to November 20, marking a 37.19% growth compared with the same period of last year. Central Insurance of Iran’s database also shows that life insurance accounted for 12.15% of insurers’ total premium income during the period. The share was recorded at 10.66% during the same period of last year and 11.98% in the month ending October 21.

Insurers paid 7.4 trillion rials ($179.3 million) to 240,000 life policyholders as indemnity. The payout ratio of the category stood at 34.2% for the eight months to November 21.
According to Sanhab data, insurance firms collectively earned 179 trillion rials ($4.33 billion) from selling 34 million insurance policies in all categories during the eight-month period. A year-on-year comparison of data indicates a 20.4% growth in premium income and 9.8% increase in the total number of sold policies. The total paid claims amounted to 101 trillion rials ($2.44 billion) during the period, marking a 25.6% growth YOY.

The Central Bank of Bahrain (CBB) has announced plans to close down Future Bank, a joint venture between two Iranian lenders – Bank Saderat and Bank Melli – and Bahrain’s Ahli United Bank, said a report. The CBB said it intends to submit a petition to the competent court for compulsory liquidation of the Bahrain-based retail bank, reported the Gulf Daily News, our sister publication.

A Chartered Accountant and Tax Administrator, Mr. Bicci Alli has said that the federal government as well as states cannot shun Islamic financial instruments whose market is valued at over $2.6 trillion, because it has the capability to bridge the infrastructure deficit in the country.
The federal government is presently looking for financial and legal advisers and trustee firms to organise its first Islamic bond in the domestic market, the Debt Management Office (DMO) said on Monday. Nigeria is working on a debut sovereign sukuk but has yet to determine the size of a potential deal. Issuance of a sovereign sukuk is part of a plan by Nigeria’s debt office to develop alternative sources of funding and to establish a benchmark curve.

Iran's central bank will take chairmanship of the Islamic Financial Services Board (IFSB) for the year 2017. Shut out of the global system by sanctions, Iranian banks are eager to resume business with foreign lenders with deals ranging from funding infrastructure to insuring foreign trade. The IFSB Council said late on Wednesday it had appointed Iran's central bank governor Valiollah Seif as chairman, with Bangladesh Bank governor Fazle Kabir as deputy chairman. Iran's entire banking system follows Islamic principles, there are 34 Islamic banks that held total assets of 14,451 trillion rials ($448 billion) as of March. This represents around a third of total Islamic banking assets globally, although Iran's version of Islamic finance can differ with what is observed in other Muslim-majority countries.

Iran and Venezuela inaugurated a joint bank to finance their development projects. The opening ceremony took place in Tehran during a visit by Venezuelan President Hugo Chavez. The Tehran based Iran-Venezuela Joint Bank has an initial capital base of 200 million dollars, with each nation providing half of the funds. The Export Development Bank of Iran, which is under sanctions from the US Treasury, was tasked with creating the joint bank. The joint bank will work within Iran’s banking regulations and its activities will be overseen by the Islamic republic’s Central Bank. The board of directors comprises four Iranians and four Venezuelans. A joint investment fund will also be launched in Venezuela.

Russia and Iran are exploring the establishment of an Islamic bank as the two countries expand their economic cooperation. According to Russian Energy Minister Alexander Novak, the banks are exploring the mechanism, but the related decision has not been made yet. State-linked Russian lenders Vnesheconombank, Sberbank and Tatfondbank have been developing Islamic financial products of their own over the past year. Iran is keen to diversify funding options for its companies. At present, most financing in Iran is sourced from domestic lenders with only a small portion sourced from foreign sources and the debt capital markets.

Iran has established correspondent relationships with 230 foreign banks since January 16, following the implementation of the nuclear deal. In addition, Iran's Ministry of Economic Affairs and Finance reported that the Export Development Bank of Iran (EDBI) has begun brokerage relations with numerous banks around the world. This includes 64 banks in 20 European countries, 36 banks in 17 Asian states, four banks in Africa as well as one bank in Latin America. However, the Islamic Republic complains that it still does not have access to global financial markets. Many international banks still shy away from financing trade deals and processing transactions for fear of US penalties.

The British government has announced that it has removed Bank Saderat Iran (BSI) from its list of sanctioned entities. The decision to delist the bank was in line with the amended regulations by the European Union regarding the lifting of sanctions against Iran. The regulations required the sanctions against the BSI to be maintained until 22 October 2016. Britain has previously lifted sanctions against three other Iranian banks. In January, the Bank of England announced that it had reactivated the licenses of Melli Bank, Persia International Bank and Bank Sepah International. This followed the implementation of a nuclear deal between Iran and the P5+1 group of countries. Iran agreed to restrict certain aspects of its nuclear energy activities in return for measures by the P5+1 to remove certain economic sanctions imposed against the country.

A senior Iranian banker has dismissed a recent report by the research center of the country's parliament, which suggested that most banks in the Islamic Republic are on the verge of bankruptcy. Esmaeel Lalehgani, Vice Chairman and Managing Director at Bank Saderat Iran, has said that the country enjoys a strong and stable banking structure. He confirmed that there are some shortcomings in the system regarding the government's debts, low capital and overdue debts. However, these shortcomings do not mean that the banks are on the verge of the bankruptcy.