Commercial banks are planning to open offices and branches in Russia, a deputy governor of the Central Bank of Iran says.
"Last month we recommended two commercial banks to start operations in Russia, first via corresponding offices and later by opening branches…Both lenders are working on the issue and we expect positive results," Mohsen Karimi, the CBI deputy for international affairs, said.
The announcement came after reports in the week about Russia's major VTB bank opening an office in Tehran.
"Given the increasing volume of bilateral trade and plans to boost banking ties, we suggested Bank of Russia to prepare the grounds for lenders in that country to open offices and branches in Tehran," he said.
"The proposal was welcomed by the Russian side and approval for the establishment of the first Russian lender’s office in Tehran was issued."
Karimi sees VTB's move as positive in that foreign banks can identify opportunities for investment and help business cooperation.
He called on other Russian banks to consider entering the Iranian market, adding that talks are already underway with several Russian lenders.
Russia’s second-largest bank VTB opened a representative office in Iran this week, 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, which has been subject to sweeping western sanctions since late February, has become the first lender to provide banking services to Iran, a country that has been under international restrictions for decades.
It 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, said that such transactions will be in high demand and the move will help strengthen economic cooperation and boost two-way tourism.
‘Friendly’ Nations
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 after the war in Ukraine.
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.
“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’s CEO Andrei Kostin discussed cooperation at a meeting with Iran’s ambassador last year. Collaboration between the two countries has gained momentum 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 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 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 CBI website said.
Pilot Program
Iran's Bank Shahr and Russia's VTB Bank were involved in the pilot program and other lenders are to join gradually. The agreement was signed in Tehran by Karimi, and Vladislav Gridchin, on behalf of Russia’s central bank.
Back then Karimi said the deal was 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 is 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.
Last July, Bank Melli Iran, the biggest state-owned lender, said it had signed a deal with Russia’s government-controlled Sberbank.
Mir Business Bank is the only Iranian-founded bank operating in Russia. The bank is 100% owned by the Iranian government and has a central office in Moscow and another in Russia’s Caspian Sea city of Astrakhan and Kazan.
