Seif’s Take on Banking After Restrictions Ease
Economy, Business And Markets

Seif’s Take on Banking After Restrictions Ease

The Governor of the Central Bank of Iran has taken stock of the impact of the July nuclear agreement between Iran and the world powers on banking and financial affairs and outlook for the key sector. His views were made known in his op-ed in the Financial Tribune’s Persian-language counterpart ‘Donya-e-Eqtesad’ on Saturday.
As the international sanctions against Iran intensified in 2012, Iran’s commercial banks were cut off from foreign money and financial institutions. Operations of their overseas branches were tightly restricted leaving adverse impact on national economic activities.
The so-called Joint Comprehensive Plan of Action (JCPOA) between Iran and the 5+1 countries has raised hopes of lifting the sanctions and opening the way for the financial sector to resume work with the world.

 Early Effects
Valiolah Seif, the CBI chief, has outlined 11 achievements for the sector post-sanctions:  
1. The bank’s frozen assets would be released and the regulator can transfer them to other foreign banks without the need for permission from European authorities.
2. Except for US banks, Iranian banks can interact normally with all foreign counterparts.
3. Connection of the Iranian banks to SWIFT (Society for Worldwide Interbank Financial Telecommunication) will be restored.
4. CBI will receive/deposit revenues from oil exports in foreign banks (except US) at its own discretion.
5. Overseas branches of Iranian banks will be reactivated enabling them to provide services to Iranians and foreigners.
6. Iranian banks can buy gold and hard currency enabling reserve management.
7. Overseas borrowing will again be possible which can help finance major development projects now on hold.
8. Applications for preferential loans and financial aid from foreign financial institutions would be facilitated.
9. Letters of guarantee and L/Cs drawn on foreign banks will be issued.
10.  Iranian citizens and organizations would be able to do business with foreign banks and institutions and vice versa.
11.  Iranian banks and financial institutions can trade bonds in overseas financial markets.

 Getting Prepared
Years of restrictions have isolated the banking system from the world for more than a decade during which the world markets have undergone a sea change. It is, therefore, necessary for banks to upgrade to meet tough international norms.
As the first step, the CBI should help the commercial banks be abreast of the latest banking standards in the world. To this end, the regulator is meeting foreign institutions to provide the much-needed training for the local staff and managers.
The regulatory structure the banking system should also be updated in order to incorporate the latest developments in related international standards on issues such as money laundering, capital adequacy, internal audit and ways to check funding terrorism…
Similarly, Tehran’s international credit ranking has to improve in order to reduce the cost of finance for local enterprises and businesses. This will eventually bolster economic growth. Such undertaking requires the settlement of foreign debts that could not be cleared under the sanctions regime. In addition, Iran needs to actively engage with export credit agencies, multilateral development banks and financial institutions. The CBI has taken the initiative in these two areas on a priority basis.
The local financial system has to actively get its share of the world market through the instruments available, namely by issuing bonds for development projects, attracting foreign investors and utilizing options world markets offer. Seif has called on commercial banks and financial institutions to carefully examine the content of the JPOA to be able to make informed choices in full awareness of the letter and spirit of the rare agreement Tehran signed with the six world powers.

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