There are no risks for foreign banks willing to start business in Iran, Valiollah Seif, the Governor of the Central Bank of Iran said Monday.
“Italian and French banks are willing to open representative offices in Tehran and the necessary measures are underway by banks and the CBI,” he was quoted as saying by IRNA on the sidelines of an economic conference.
Seif pointed to some foreign banks’ cautious stance toward Iran and opening LCs saying that some foreign lenders are not “fully aware of the details of the implementation of the nuclear deal”. The foreign banks will reach out to Iranian lenders for doing business in the months ahead.
Although the world powers have lifted most economic and banking sanctions against Iran in exchange for Tehran's commitment to curb aspects of its nuclear program, some restrictions remain in place
Washington still prevents US nationals, banks and insurers from trading with Iran and also prohibits any trade with Iran in US dollars from being processed via the US financial system. This has made European banks to become extra cautious about resuming ties with Iran due to huge multi-billion-dollar fines they had to pay to US regulators for violating the Iran sanctions in the past several years.
Iranian banks are striving to reestablish correspondent banking relations with foreign lenders according to Seif in an effort to revitalize working ties with the outside world.
“The correspondent banking network between Iranian and foreign banks is gradually picking up,” the senior banker expounded. There are some preliminary steps to be taken in this regard including opening new accounts which are underway.
The international sanctions hit hard almost all sectors of the economy, the banking system in particular. Iranian lenders were severely restricted as they were deterred from doing business with their foreign peers. The embargo created added problems for the struggling banking industry as it was completely isolated from the world banking and credit system.
Asked about the state of Iranian banks’ reconnection to SWIFT, the CBI chief emphasized that “all Iranian banks are now reconnected" to the global network.
Seif called on Iranian banks to upgrade and update and embrace the prevailing international banking laws. “The CBI is determined to augment the resources of domestic banks and help them reach acceptable international levels. “The Capital Adequacy Ratio for Iranian banks is now at 4.5%.”
CAR is an international standard that requires banks to deposit a percentage of their capital with the central bank of the country to be used to pay clients if the banks go under. The international CAR is 10-12%.
Pointing to the forex market Seif said, “The single foreign exchange rate will come into effect in the second half of the next fiscal year (starts March 20) and will help check rent-seeking and corruption in the currency market.”
Economic sanctions forced the regulator to adopt a twin exchange rate regime in 2012 with the government providing official (subsidized) foreign exchange for the import of basic goods while the highly volatile parallel market rate catered to non-essential demand.
Credit Card Scheme
The CBI governor dismissed claims by the head of Tehran Home Appliances Manufacturers, Mohammad Reza Diani about the credit card scheme. “The credit card scheme has not been canceled and banks can issue cards for those who have registered.”
The CBI, he recalled, had not promised to issue credit cards for all and everyone, adding that specific groups like payroll workers and young couples are first on the priority list and are receiving the cards in the first phase of the plan.
As a part of the government stimulus package, the CBI had promised to issue credit cards at 12% interest for buying domestically-manufactured products.
Head of Home Appliances Manufacturers Union had said on Sunday that the CBI's credit cards scheme had been suspended even before it was fully launched. He said the "people have lost hope in being able to benefit from the planned lending facilities."
Rial Redenomination
On the issue of dropping the four zeroes from the rial, a proposal in the making for almost a decade, Seif said implementing the scheme has its own solid demands.
“First of all, a sustained, single-digit inflation is needed. Before reaching the (oft-mentioned) single-digit inflation rates we cannot drop the zeroes" from the national currency.
The inflation rate which stood at 40% in 2013 when President Hassan Rouhani took office is now down to 13% due the government's monetary tightening. The point-to-point inflation is now 9.6% according to the CBI governor
Key Issues
Seif noted that the government’s major economic goal is to establish financial and monetary discipline while curbing inflation to reach single-digit.
Stability in markets, lending for domestic projects, elevating growth levels are on top of the government’s economic agenda ever since it took office in mid-2013, he said.
Elaborating the government’s anti-inflationary policies, the CBI governor said “The single-digit inflation rate is around the corner.” He said lower inflation in the past two years was due largely through “keeping liquidity growth in check,” monetary discipline and lending mainly for boosting production and growth.
“International organizations have predicted growth rates of 5-7% in the coming year.”
