Economy, Business And Markets

Iran’s PIB Connects to Euro Payment System

Finance Desk
Iran’s PIB Connects to  Euro Payment System
Iran’s PIB Connects to  Euro Payment System

Iran Persia International Bank is now connected to TARGET 2 interbank payment system, a significant development for the country's banks after years of being isolated from the global banking network due to the international sanctions.

TARGET2 is an interbank payment system for the real-time processing of cross-border transfers throughout the European Union.

Mohammad Reza Meskarian, PIB chief says his bank had first made a request to be connected to the premium payment system in 2007 but it was suspended as the sanctions over the nuclear dispute were tightened by the big powers.

"This is a big step for our bank as we are now connected (from June 8) to the Eurozone clearing system with more than 1,700 lenders as its members," Meskarian said in an interview.

The move will allow the bank to conduct any transactions for its customers using the single European currency.  

According to Meskarian, the biggest supporter of PIB's bid joining the European payment system was the Deutsche Bundesbank, Germany's Central Bank, which is the most powerful and influential  central bank in the 19-naion eurozone.

Asked how this latest development could help ease Iranian trade with the outside world, Meskarian said: "It all depends on the extent to which the major European banks are willing to process Iranian-related transactions."

 Major European banks, some of which have been punished for breaching the sanctions imposed on Iran, are skeptical about dealing with and restoring trade ties to Iran. They have largely held back since the lifting of the main restrictions in January following the signing of the nuclear agreement between Tehran and the six world powers.

Meskarian noted that the "unwillingness" on the part of European banks remains the main obstacle to Iran's inability to normalize banking relations with foreign lenders. "US primary sanctions and fear of past hefty fines is the major factor holding back the banks."

As of last February Iran was able to relink to the worldwide transaction network SWIFT, the Belgian based cooperative which handles cash transfers and letters of credit between financial institutions across continents.

But as with SWIFT, the concern that major global lenders are still reluctant to restore correspondent relations with their Iranian counterparts looms large.

Channel to Clear Oil Debts

Meskarian, however, says some major banks have discarded their fears and are now accepting transactions from Iranian lenders, such as PIB, as long as the money transfers are for their own customers.  

These banks include some financial institutions such as Austria's Ober bank and Deutsche Bank, which Meskarian considered to be "good progress."

"Our bank will be able to handle all kinds of transactions through these banks, including acting as a channel to clear India's oil debts to Iran."

Indian refiners announced this week they have turned to State Bank of India and Germany-based bank Europaeisch-Iranische Handelsbank AG (EIH) – to speed the payment of billions of Iranian oil dues they still owe to Tehran, after delays in another money route. "The oil payments were also made possible through the TARGET 2 system," Meskarian said.

The CEO of the London-based bank said his bank will conduct UK transactions with Iran so long as they are in euros through Deutsche Bundesbank.

"We are in negotiations with British clearing banks to facilitate transactions in pound sterling," he said, admitting that so far the talks had been futile.

"But we hope to soon forge agreements with a major UK-based bank and seal the same deal we did with Oberbank."

If that agreement is signed, Meskarian said, "pending trade deals, like Rolls Royce selling aircraft parts to Iran, could be finalized."

Persia International Bank belongs to Bank Mellat and Bank Tejarat and is based in the UK in London with Iranian owners.