Economy, Business And Markets

Foreign Stake in Banks to Increase

Foreign Stake in Banks to Increase Foreign Stake in Banks to Increase

The Central Bank of Iran will send a bill to Parliament proposing an increase in the percentage of shares foreign investors and banks can hold in joint banks  founded with their Iranian counterparts, said Hamid Tehranfar CBI vice governor for supervision affairs.

"Raising the 40% ceiling of shares foreigners' can hold is among several  measures the CBI is taking to encourage foreign investment in domestic banks while helping Iranian lenders engage with international markets," Tehranfar was quoted as saying by akhbarbank website.

He added that in the free trade zones foreigners can establish new banks with 100% ownership. "The minimum capital required for starting a bank in FTZs is € 25 million but they can only trade in foreign currencies."

According to the CBI official "The presence of foreign banks in Iran can contribute to healthy competition in the banking sector. It will also motivate  Iranian lenders to close in on the gap between their present performance and  international standards upheld by their foreign counterparts. Easing of foreign trade is another byproduct of such competition."

Tehranfar opined that the process and mechanisms of granting loans will be eased, adding that a competitive market makes banks allocate loans based on the merit of the customers' schemes and not "nepotism."

If and when this happens "The tide of banks' bad debts will recede and the issue of overdrafts will be settled," he said. Advanced foreign expertise and technology will also help the banking sector as a result of the foreign investment in Iranian banks, the website quoted him as saying.

No Foreign Banks Yet

No foreign banks are operating in Iran at the moment according to Tehranfar. He said cumbersome laws plus high interest rates (for economic ventures in rials) discourage foreign banks from setting branches or buying shares in Iranian banks.

The official however, noted that five foreign banks do have branches in Iran "but are inactive due to the sanctions."

 Europaisch-Iranische Handelsbank AG controlled by Iranian-German businesses with 2 branches in Tehran and Kish, the British Standard Chartered Bank in Kish, Bahrain's Future Bank in Kish, and the Iraqi Taavon Bank in Tehran are foreign lenders that were forced to leave  the country in the wake of nuclear-related sanctions and western economic restrictions.

Tehranfar announced that international credit cards such as Visa and Mastercard will reenter Iran's market in the post-sanctions era. He said Iranian banks can issue the cards on behalf of the foreign companies and help introduce the cards to the domestic market.

The vice governor said Iranian banks have 45 branches overseas which also are inactive due to the sanctions. Restrictions on their activities will be lifted when Iran's nuclear July accord with six world powers will come into effect, probably in early 2016.

He, however, noted that Bank Saderat, Mehr Eqtesad Bank and Ansar Bank will remain under the sanctions regime even after the implementation of the historic nuclear accord because they have been banned for reasons other than the nuclear dispute.