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German Banks Prefer to Wait Before Reconnect
Economy, Business And Markets

German Banks Prefer to Wait Before Reconnect

The head of the German banking association said on Friday, that restoring German banks’ financial ties with Iran will take time given debt owed to Berlin and transparency concerns,

Iran owes Germany about €500 million ($569 million) under the so-called Hermes cover, a German government arrangement that protects German companies if foreign debtors fail to pay.

“Rebuilding ties with Iran requires patience,” Michael Kemmer, head of banking association BDB, told Reuters. “To begin with, the transactions regimen has to work again before the next step of financing projects can take place.”

German industry has been hoping for a surge in exports to Iran after international sanctions were lifted in January in return for the Islamic Republic complying with a deal to curb its nuclear ambitions.

German Economy Minister Sigmar Gabriel will co-chair an economic conference with his Iranian counterpart Ali Tayyebnia in Tehran May 2-3, and German companies see the event as a potential catalyst for doubling exports to Iran to 5 billion euros.

But the German government has said guarantees for exports to Iran will not be renewed as long as Tehran’s debt is not paid.

A spokeswoman for the German Economy Ministry said on Friday both sides were holding “in-depth talks” on the issue and these could soon be concluded.

  Transparency Issues   

She added companies could apply for Hermes export guarantees and a decision could be made immediately after an agreement.

Credit insurer Coface said this week there was a lack of reliable information for doing risk assessments on Iranian corporate partners but medium-term prospects were good.

Another barrier for German banks is transparency.

The Paris-based Financial Action Task Force (FATF) said in February it remained concerned about what it called Iran’s failure to address the risk of terror financing and the serious threat this poses to the global financial system.

“It is really important for banks that the FATF reevaluates the situation in Iran,” Kemmer said. “The supervisory standards require that business ties with banks that have high risks lead to higher capital and liquidity requirements.”

Governor of the Central Bank of Iran, Valiollah Seif, recently said however, that US Secretary of Treasury, Jack Lew, had lauded Iran for its ant-money laundry efforts but said more remains to be done.  

Despite lifting most of their economic sanctions, the United States and European Union still forbid business with some Iranian individuals, firms and banks, which forces financial institutions to do lengthy and costly checks to avoid penalties.

  Gradual Improvement

Meanwhile the CEO of a private Iranian lender expressed optimism over Iran’s banking relations during the post-sanctions era, stressing the need for a ‘gradual improvement’ for resuming banking ties with the outside world.

“Generally, a benign ambience has been created after Iran reached a landmark agreement with the P5+1 over its nuclear activities. After reconnecting to Swift, the international interbank messaging network, banking relations are improving ‘gradually’, as expected,” Hassan Motamedi, CEO of Eghtesad Novin Bank was quoted as saying by Eghtesadnews.com.

Iranian banks, their overseas branches and affiliates were officially removed from Swift’s list of sanctions once the embargo against the country was officially lifted in January.

Considering sluggish improvement in banking relations during the three-months since the deal came into force, he said “prior to western sanctions against Iran, Iranian lenders’ relations with international lenders had been in the making for decades. However, resuming normal banking ties is a lengthy process which requires at least a 3-6 months to materialize.”

Highlighting Iran-US complicated relations as a hurdle in the way of normalized banking ties, the banking official said “during the sanctions years, the US had fined European banks up to €8 billion for having correspondent relations with Iran.

He emphasized the importance of having sufficient financial resources for developing banking relations. “Besides providing financial resources, signing contracts with European insurance companies, such as export insurance, would provide extra incentive for international banks to foster long-term banking relations with Iranian lenders.”

After the implementation of the nuclear deal, Iran signed contracts with some international export credit insurers such as, Hermes, COFACE, UEF, UKEF and SACE to be able to restore correspondent relations with international banks.

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