21809
Of Money and Men: Invasion of Commercial Banks
Economy, Business And Markets

Of Money and Men: Invasion of Commercial Banks

Although a strong case can be made that there is a strong correlation between a robust financial system and economic growth, the mushrooming growth of banks and financial institutions in Iran, particularly in the capital Tehran, is a notable example of this principle gone awry.
The staggering number of banks has even alarmed monetary officials, with the governor of Central Bank of Iran, Valiollah Seif, expressing concern about the presence of “too many banks” in the country.
Thirty-two commercial banks—including public-sector and private lenders—are now operating throughout the country, whose branches exceed well over 22,800. Among them, Bank Melli, with 3,692 branches, is the largest and Middle East Bank, with just 11 branches, is the smallest.  
In Tehran there exists a bank per 3,230 population. Nearly 330 branches of Bank Melli are based in Tehran, and out of the 328 branches of Bank Pasargad—a prominent private bank—208 are located in the capital. A cluster of 10 banks or even 25 banks on a typical Tehran street are not uncommon. In a sharp contrast, Tehran Province is faced with a drastic school shortage, with triple-shift schools prevalent in some of its towns.
The World Bank data for Iran suggest there are 27.7 commercial bank branches per 100,000 people. This figure is way higher than that of many countries with developed economies, like Germany with 14.7 bank branches or the United Kingdom–a global financial hub—with 22.2 banks per 100,000 citizens. The figure for Saudi Arabia, a regional country with a larger economy, is 9, while the global average is 12.2.    
The figures mentioned above are only about commercial banks and do not include a myriad of credit institutions operating very similar to a bank in Iran, a good number of which lack any certification from the Central Bank of Iran.  Their legal records apart, these financial companies have had their own share in causing financial havoc in the country.

 Frankenstein    
The giddy growth of banks in Iran is symptomatic of an architectonic malaise that ails the whole financial system and that is banks’ foray into non-banking businesses such as real-estate investment and imports.
While banks were created to act as financial mediators turning runaway assets into means of production and manufacturing, most Iranian banks have renounced their original mission by becoming a rival for startups and manufacturers instead of helping them grow.
The situation becomes all the more dire considering the crucial role that commercial lenders play in Iran’s economy, with 80% of the liquidity being supplied by banks. The frenzy for banking is now at its climax with almost every organization and bureau opening a bank in its name. The question is if all that activity were geared toward manufacturing, what enormous benefits would trickle down to all the sectors of the economy.
All the drama triggered by banks in recent years should act as a caveat for the government to finally take the plunge and reform the banking system.
Seif has said that the whopping number of banks is no longer feasible and has recommended mergers between lenders to cut costs and increase efficiency. That may happen, but first and foremost banks need to go back to their roots and embrace pure banking once again.

Short URL : http://goo.gl/stSwGP

You can also read ...

Pretoria Hosts South Africa-Iran Business Forum (Photo: AfricaNewsAgency)
The South Africa-Iran Business Forum was held in Pretoria,...
The health deal was signed in Iran’s Embassy in London on Oct. 23.
Iran’s Ministry of Health signed an investment and cooperation...
2 Iranian Rating Firms Licensed
Securities and Exchange Organization of Iran, the country's...
The fiscal 2014-15 was the worst year for the construction sector in recent memory, with growth rate reaching its nadir at -17%.
The research arm of the Iranian Parliament has forecast a...
Mellat Insurance’s office in Tehran
Mellat Insurance, affiliated with Bank Mellat, announced that...
Renault Launches Used-Car Sales Scheme in Iran
Negin Khodro, the local official importer of Renault cars, has...
485,000 New Jobs Averaged Annually Since 2013
An average of 485,000 jobs were created every year during...
Furniture Exports on Decline
Iran exported about $6 million worth of furniture during the...

Trending

Googleplus