Russia’s second-largest bank VTB has opened a representative office in Iran, an Iranian official said on Wednesday, as Moscow and Tehran, both restrained by western sanctions, seek to improve trade and transaction capabilities.
State-owned VTB plunged to a $7.7-billion loss last year as western sanctions particularly targeted Russia’s financial sector. The lender is one of many key Russian banks now blocked from the SWIFT international financial messaging service, Reuters reported.
State-owned VTB, which has been subject to sweeping western sanctions since late February, has thus become the first lender to provide banking services to Iran, a country that has been under international restrictions for decades.
The bank launched a new service allowing both individuals and businesses to transfer money to and from Iran, the lender said back in December.
The bank’s vice president, Denis Valvachyov, believes that such transactions will be in high demand and that the move will strengthen economic cooperation and boost tourism between the two countries, the broadcaster said Monday.
The service allows money to be sent between Russia and Iran using account details within a day. Next year, VTB is planning to expand transaction services with so-called ‘friendly’ nations, a classification describing those that have not imposed sanctions on Russia.
Payments are currently available to the bank’s clients in more than ten former CIS states and some Asian countries.
“The number of foreign banks’ representative offices in recent years dropped from around 45 to 15, and VTB is the only bank to open its office during this period,” semi-official news agency ILNA quoted Alireza Peyman Pak, the head of Iran’s Trade Promotion Organization, as saying.
Reducing Foreign Transfer Costs
“Due to its active presence in the banking networks of Iran’s export destinations such as CIS countries, India, Vietnam and particularly China, VTB will help boost export earnings and reduce foreign transfer costs for Iran.”
VTB, whose CEO Andrei Kostin discussed cooperation at a meeting with Iran’s ambassador last year, did not immediately respond to a request for comment.
Cooperation between the two countries gained momentum last year amid western sanctions on Moscow and Tehran. Throughout 2022, both sides reached several agreements to expand cooperation, from barter supply deals for Iranian turbines, spare parts and aircraft equipment, to contracts for the joint construction of gas pipelines.
Meanwhile, Bank of Russia Governor Elvira Nabiullina may visit Iran in the coming weeks to strengthen financial ties, a separate source told Reuters. The central bank did not immediately comment.
Dominant lender Sberbank’s CEO, German Gref, has also discussed reinforcing ties with the Iran, but has not yet entered the market, another source said.
The central banks of Iran and Russia signed a deal to connect their national interbank communication and transfer systems to help boost trade and ease two-way bank transactions in late January.
Per the deal, 52 branches of Iranian banks and four unnamed foreign banks were to use Iran's local interbank telecom system, known as SEPAM, to connect with 106 banks using Russia's System for Transfer of Financial Messages or SPFS, the website of the Central Bank of Iran said.
Iran's Shahr Bank and Russia's VTB Bank were set to be involved in the pilot program and other lenders are to join gradually. The agreement was signed at the CBI by the deputy head for international affairs, Mohsen Karimi, and Vladislav Gridchin, on behalf of Russia’s central bank.
Karimi said the deal is a big step forward in implementing counter-measures against banking sanctions between Iran and Russia. "The two local interbank systems cannot be sanctioned and their infrastructure are not controlled by western governments," he was quoted as saying.
"The contract is the first step outlined in the join action plan of banking cooperation signed last year by the two central banks. This should pave the way for all Iranian banks to interact with Russian lenders.”
Gridchin expressed Russia’s interest in enhancing ties with Iranian banks noting that the agreement will help promote bilateral trade and a defining feature is that it cannot be sanctioned.
SPFS is the Russian equivalent of the SWIFT financial transfer system developed by Russia’s central bank. It is in place since 2014 when the United States government first threatened to disconnect Russia from the SWIFT system.
SEPAM (a Persian acronym) currently functions as a venue through which interbank transactions are conducted electronically. It is said to be capable of being connected to foreign banks.
