Many sectors of Iran’s economy are poised to benefit from sanctions relief to be made possible by the nuclear agreement struck between Iran and world powers on July 14, but no other sector could anticipate it more anxiously than the banks. Banks enjoy a unique place in the economy by reportedly boasting to finance 90% of the projects.
However, banks are in desperate need of reforms. Years of mismanagement, exacerbated by nuclear-related sanctions which cut off many commercial lenders from SWIFT global interbank network, have put many of them in the red.
In order to compensate for their losses, banks resorted to non-banking speculations which, according to a parliamentary report, account for over half of their revenues.
As calls for reforms grow stronger, bankers have felt the need for change and are bracing for a ‘’ new era” in banking. The Central Bank of Iran has announced that foreign banks can have a 40% stake in Iranian banks or a 100% stake in banks operating in free trade zones.
Ali Rastegar, CEO of Bank Mellat, has reflected on the prospects of Iranian banks going global and their prerequisites. The opinion piece published in Banker news website advocates five conditions to be met by lenders to make them suitable for banking on par with international standards.
Business Model
Iranian lenders need to upgrade their business model to more “sustainable” should they want to compete in the international arena.
Rastegar maintained that a sustainable model is now the backbone of the top global banks’ strategies.
Sustainable banking, Rastegar explained, promotes “enduring values” for all interested parties as a core principle. It takes a holistic approach to economic, social and environmental factors of workplace.
“Banks that adopt the sustainable model tend to devote attention to the real economy, champion transparency, have more resilience and focus more on their customers,” Rastegar wrote.
Since improving banks’ business models to a sustainable doctrine will boost banks’ economic value and social profitability, Rastegar argued that Iranian banks should alter their strategies toward sustainable models if they want to have a voice in global banking and finance.
Playing by Rules
Another essential component that Iranian banks should acquire before qualifying for the global stage is to conform to international banking rules.
According to Rastegar, the most important of these rules are Basel II and Basel III, both issued by the Basel Committee on Banking Supervision. They encompass rules governing risk and capital management, bank capital adequacy, stress testing and market liquidity risk.
Rastegar contends that Iranian banks will undergo transformation by accepting these codes of conduct and thereby earn credit ratings in such global indices such as S&P and Moody’s Investors Services.
High Tech Revolution
Banking, more than any other industry, has become integrated with technology and, as Rastegar put it, acts as a game changer in distinguishing a bank from its rivals.
Although Iranian lenders have so far done a great job in embracing new technology, Rastegar recommended, they need to up their game by adopting a “unified” approach in utilizing smart technology and upgrading their infrastructure, tools and systems.
Customer Services
Rastegar urged Iranian lenders to seize upon their experience in Islamic banking and adapt themselves to the ever-changing taste of their customers.
“Banks all over the world are facing fierce competition to satisfy their customers’ needs,” Rastegar wrote. “In recent years Islamic finance has had an exponential growth, which has prompted big banks to launch a variety of Islamic banking services and the Iranian banks should follow suit.”
Human Resources
The last point emphasized by Bank Mellat’s CEO is a renewed focus on human resources as a key to long-term success.
“Recruiting talents not only elevates bankers’ level of skill and knowledge, but also raises the bar and uplifts professionalism in banks,” Rastegar maintained.
He called for cooperation between Iranian banks and leading global banks to train top-quality workforce and urged bankers to draw upon the professional banking business to enhance their performance.
