Economy, Business And Markets

Pruning Bank Branches

Pruning Bank BranchesPruning Bank Branches

The Central Bank of Iran has managed to reduce the number of bank branches inside the country by 250, a CBI official announced on Tuesday.

“So far 250 bank branches have been deactivated and the process will continue in the current Iranian year (started March 21),” deputy CBI governor, Hamid Tehranfar was quoted by IRNA as saying.  

The rapid pace of developments in electronic banking will eventually force the banks to reduce the number of physical branches, he said. However, he admitted that the process of cutting down the large number of bank branches that have dotted urban landscapes for a better part of the past quarter century “will not be without difficulties.”  He did not elaborate.

Apart from high operational costs and low productivity, the unusual increase in the number of bank branches has been blamed for the resource shortages many commercial banks have been struggling with and which his severely restrained their lending power.

Backing the long-awaited CBI move, Mehdi Taghavi, a local economist, said “The banks can improve lending if they reduce the number of branches.”

There are reportedly over 20,000 bank branches across the country which is far too many given the total population and global standards. After taking office in the summer of 2013 the government has pursued the implementation of a directive issued in the final years of the past administration calling for a 20% reduction in the number of bank branches.

In March the regulator issued a new directive to commercial banks and financial institutions obliging them to shut a quarter of their branches by September 21. The directive also calls on commercial banks and financial institutions to sell all their affiliated companies including bureaux de changes, leasing firms, real estate for which there is no need and rescind partnerships in commercial projects.

As per the directive, no new applications for branches will be entertained except for the newly-established banks and institutions wanting to open provincial branches.

Issue of the expanding and inefficient branches has long been a controversial subject among economists and the print media almost all of whom have been critical about the development seen mostly in the big metropolises across the country. One disturbing feature of the expansive and expensive branches of both state-owned and private banks is that they prefer upscale areas of the cities with the alleged intention of adding value to the property and selling later for fat profits.

Most of the branches are unusually big in size with high-priced interior decoration to attract customers. Another s visible negative factor is that many branches lack clients and their workers have an attitude despite the fact that in terms of wages and perks (especially their regular access to housing and other loans) they are much better off than other fixed-wage earners in different sectors of the saturated job market.