With a nuclear deal between Iran and the major world powers finally done, the question that looms largest is how domestic industries, including the banking sector, will fare. Banking will be particularly in the limelight because of the crucial role it plays in the Iranian economy.
Banks undertake the financing of 80% of all projects, big or small, and therefore their enhanced role in a post-sanctions era when frozen assets make enter the country’s coffers becomes clearer.
Peyman Qorbani, vice governor for economic affairs at the Central Bank of Iran, commented early on the issue. Qorbani told IRNA on Wednesday that the landmark nuclear accord would expedite the reforms already underway at CBI.
“The nuclear deal will have a positive impact on the economic landscape of the country and since investors make their decisions based on long-term conditions, the nuclear settlement will make investment decisions easier,” Qorbani explained.
He said, however, that the central bank will continue to pursue the principles of “Resistance Economy” advocated by the leader, Ayatollah Seyyed Ali Khamenei.
“Some business activists had defaulted on their loans due to sanctions that gave rise to non-performing loans but after the lifting of sanctions not only cash flow into the country would be facilitated but the NPLs ratio will also drop,” Qorbani said.
Based on recent estimates, NPLs amount to more than $30 billion, but the economy minister and other officials estimate the loans to be near $60 billion. One reason for the rise in NPLs is due to a decision during the previous administration to force lenders to provide low-interest loans, regardless of customers’ credit ratings.
Sanctions No More
Banking sanctions intensified when disputes between Iran and the six world powers over its nuclear program reached their peak. The embargo on the central bank, however, was the most difficult part that squeezed Iran’s financial system. Other banks joined the list of sanctions, one after another. Bank Sepah, for instance, heavily relied on foreign transaction fees for income, but when Sepah and several other banks were cut off from the SWIFT global interbank messaging network, they incurred heavy losses.
Now the sanctions relief means banks can get back on track and become functional entities again. On the other hand, banks that have a presence in the equity market will see their share values rise sharply after sanctions are removed. These banks include Saderat, Mellat, Sina and Tejarat.
When sanctions on Iran’s use of SWIFT are lifted, new financial sector opportunities could also open.
In a note published by Barron’s, Simon Wong of investment firm Gabelli wrote that an agreement would “open investment opportunities in the country’s oil and gas sector.” That would likely benefit oilfield service firms like Schlumberger, Weatherford International and Halliburton.
While the energy industry may be the most obvious beneficiary of an Iran deal, banks will also stand to benefit, experts told CNBC on Wednesday.
“All of the major banking institutions in the industrial world will try to finance and facilitate increased trade with Iran,” Christopher Whalen, senior managing director at Kroll Bond Rating Agency said. “It’s a big country, (and) they are very western-focused. Iranians are consumers of everything. You can anticipate anything from industrial equipment to consumer products will definitely be bought, and will definitely be financed.”
As for which US banks stand to benefit, Whalen said the gains will be concentrated among some of the top financial institutions—Citibank, JPMorgan, Goldman Sachs and Morgan Stanley. Those banks, he said, will likely work to facilitate the shipment of goods and services to Iran, taking on a trade finance function and supporting project finance.
They may also reach out to Iranian banks about sovereign business, Whalen added.
But American banks are not the only ones that stand to benefit from a reduction of Iranian sanctions, Whalen said, explaining that they will compete against European and Asian banks for the business.
