Economy, Business And Markets

CBI Raising the Bar for Lenders

CBI Raising the Bar for Lenders
CBI Raising the Bar for Lenders

The Central Bank of Iran is developing a set of criterion for assessing domestic banks which will be ready in the next fiscal year (starts March 20), said Akbar Komeijani, the bank’s vice-governor said on Monday.

 “We are putting together a series of standards for banking operations, supervision of banks and liquidity management,” Fars News Agency quoted him as saying.

“By publicizing each bank’s capacities and services, we will help depositors make informed choices. They will know to what extent banks meet their commitments in lending practices and the services they offer,” he said.

President Hassan Rouhani has instructed the CBI to issue ratings for all money and credit institutions which would compel them to improve and meet international norms and regulations.

Despite the impressive progress in international banking in the past two decades, Iran’s banking system has been left behind leading to inefficiency and low productivity.

Referring to CBI governor’s recent comments about interbank rate violations by three banks, he said, “This does not earn them the ‘bad bank’ tag because they had poor performance only in the interbank market.”

“These banks had offered to pay 0.5% higher rates than the official rate, mainly because they needed money quickly,” to improve their balance sheets, he said.

CBI achievements in managing the interbank market in recent months have helped banks meet their short-term liquidity needs, the news agency quoted him as saying.

The CBI started to intervene in the interbank market last November, when the rates were around 29%. However, now it has been lowered to 18.5% and will be cut further to get closer to the rate of inflation which currently hovers around 12%.

 European Reluctance

In a separate development, Iran has said that European banks and companies were too wary about renewing business ties following the lifting of economic sanctions and said it had asked the International Monetary Fund (IMF) to help ease their anxiety.

In January, world powers led by the United States and the European Union lifted most sanctions on Iran in return for curbs on its nuclear program.

But some US sanctions remain, and US banks remain banned from doing business with Iran directly or indirectly because Washington still accuses Iran of “supporting terrorism”. This has deterred some European institutions who fear they could be penalized if they reestablish banking and commercial ties to Tehran.

“There is still ‘Iranophobia’ in the banking sector that we’re trying to overcome,” Hamid Tehranfar, a CBI vice governor was quoted as saying by IRNA.

“We have asked the IMF to review our regulations so other countries’ banks feel reassured. The IMF will announce its assessment in 2018,” he added, without explaining why it would take so long.

As part of sanctions relief, most Iran’s banks were reconnected to the SWIFT international payments network last month, allowing them to resume cross-border transactions with foreign banks. But because of foreign institutions’ legal concerns, activity has been very limited.

 Breaking the Ice

The foreign banks’ hesitation in revitalizing ties with Iran is not due to the negative input from their governments, Reza Nasri an international law expert from Geneva’s Graduate Institute of International and Development Studies (HEI), said on Monday.

“Lack of sufficient knowledge about the new rules after the nuclear accord, fear of financial penalties, and the complexity of matching with the new legal and political climate are among the reasons for foreign lenders’ hesitation in reconnecting with Iran,” he told IRNA. Foreign lenders remain too cautious after their bitter past experience in dealing with Iran.

He said many European banks have already initiated the process of relinking with Iran or are planning to do so. “Signing of deals between the big companies and Iran has accelerated the process of Iran’s economy and banking system reopening to the global economy.”

Following the nuclear accord and lifting of sanctions several heavyweights like Siemens, Total, Shell and Airbus signed billion-dollar deals with Iran. Economic delegations from more than 50 countries, namely Italy, Germany, France, Japan, South Korea, Finland, Turkey, Sweden, Poland and Bulgaria have visited Tehran to pave the way for normal trade and industrial collaboration.

According to Nasri, the laws regarding trade with Iran under the sanctions’ regime were “complicated and multilayered” and some banks like France’s BNP and Britain’s Standard Charter were fined billions of dollars for evading them. “Hence foreigners are still cautious and prefer to take risk-free steps.”

“It will take time for foreign banks to be assured of the fact that direct relations with Iran are safe. Western governments can help accelerate the process by clarifying the new rules to their banks and giving them the assurances they need.”

The senior expert said governments and private sectors, both in Iran and foreign countries can help the process of revamping banking and economic ties with Iran in the post-sanctions era.