Iran and Russia Sign Deal to Link Banks

The central banks of Iran and Russia Sunday signed a deal to connect their national interbank communication and transfer systems to help boost trade and ease two-way bank transactions.

Per the deal, 52 branches of Iranian banks and four unnamed foreign banks will 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 will be involved in the related pilot program and other lenders will join gradually.

The agreement was signed at CBI by the deputy head for international affairs, Mohsen Karimi, and Vladislav Gridchin, on behalf of Russia’s central bank.

Speaking on the sidelines of the signing ceremony, 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 will pave the way for all Iranian banks to interact with Russian lenders.”

Gridchin expressed the Russian side’s interest in enhancing ties with Iran’s 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 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.

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.

Earlier this month, the Central Bank of Iran hosted a Russian delegation headed by Igor Yevgenyevich, aide to the Russian President Vladimir Putin. The two sides discussed ways to further cooperation in banking and monetary affairs.

Speaking at the meeting Mohammad Reza Farzin, the new CBI governor, expressed Tehran’s readiness to build banking ties with Russia.

Forward Movement

Farzin referred to the deal signed by the two central banks saying that it reflects a path for the future of economic relations. Yevgenyevich stressed the importance of expanding bilateral banking ties.

The Iran Currency Exchange (ICE) listed the ruble-rial trading pair in July 2022, following a visit last month to Moscow by the former CBI governor, Ali Salehabadi.

The arrangement means that the two countries can now settle trade payments in each other’s currencies. The first such trade was on July 19 with a 3 million rubles ($48,000) exchange.

That was the day Russia’s President Vladimir Putin arrived in Tehran and met the Leader Seyed Ali Khamenei and President Ebrahim Raisi.

Iranian media reported that the new system could reduce the demand for dollars by $3 billion a year. Iran-Russia trade was near $4 billion in 2021. Finding common cause in their approach to the West, the two countries say they are hoping to ramp up annual bilateral trade to $8 billion.

Central banks on both sides have been working on linking their domestic payment networks since 2017. It was announced earlier that integration of Iranian and Russian bank card networks is expected to be completed soon.

Last summer, Iran prepared the infrastructure to join Russia’s Mir system. But after international sanctions were announced on Russia for invading Ukraine in February 2022 that cut off Russian bank access to SWIFT, the two sides decided to focus on creating a rival to SWIFT for cross-border payments.

VTB Services

Russia’s second largest bank, VTB, launched a new service allowing both individuals and businesses to transfer money to and from Iran, the lender said, RT reported earlier.

State-owned VTB, which has been subject to sweeping western sanctions since last February, has become the first lender to provide banking services to Iran, which is saddled with some of the toughest international banking/monetary restrictions for decades thanks to Washington’s belligerence.

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 sides, the news outlet said. 

The new service will allow money to be sent between Russia and Iran using account details within a day. 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 bank clients in more than ten former CIS states and some Asian countries.

Trade in Nat'l Currencies

Trade between Russia and Iran surged by 15% last year, reaching $4.6 billion, Vyacheslav Volodin, the speaker of the State Duma, said at a government meeting, RT reported.

According to the senior lawmaker, the two countries are actively taking steps to build mutual trade, which is “extremely important in the conditions of sanctions pressure on our countries.”

He praised the memorandum on free trade between Iran and the Russia-led Eurasian Economic Union (EEU), which was signed last week, saying that it will take Russia-Iran trade to a different level.

According to Volodin, both countries should now focus on boosting the efficiency of mutual cooperation in the financial and banking sectors, in particular, by increasing the use of national currencies in settlements, by using the Russian ‘Mir’ and Iranian ‘Shetab’ payment systems.

“It is important to use settlements in national currencies more actively. Much has already been done in this regard – now the share of the ruble and the rial in mutual settlements exceeds 60%. Work on the joint application of national payment systems is being completed.

This will minimize the impact of sanctions and also address issues related to mutually beneficial cooperation,” Volodin stated.

Trade with Iran is significant for Russia on its own, but is also seen as a “logistical bridge” between Russia and the Middle East, South and Southeast Asia, due to Iran’s geographical proximity.