Economy, Business And Markets

Big European Banks Warming Up to Iran

Big European Banks Warming Up to IranBig European Banks Warming Up to Iran

Larger European banks are reengaging with Iran, Central Bank of Iran’s vice-governor, Ali Akbar Komijani, told a banking conference on the sidelines of the Ninth Exchange, Banking and Insurance Exhibition (FINEX 2016) on Tuesday in Tehran.

“Iran was in contact with European banks even before the lifting of the sanctions. Connections started to expand after sanctions were eased in January,” the CBI website quoted him as saying.

Italy's Unicredit, Switzerland’s BCP and Austria's Erste Bank are reportedly some of the European banks that have started relations with Iran after lifting of the sanctions in January.

The nuclear deal was a turning point in the country’s economy, according to Komijani. “It helped with the implementation of economic reforms both at the macro and micro levels.”

“Regaining access to Iran’s frozen assets and oil revenues overseas, the possibility of conducting transactions and the expansion of corresponding banking relations,” are the other results of lifting of the sanctions, he said.

He also referred to the anti-money-laundering legislation and said, “This helped persuade international banks that Iran is taking the necessary measures. It is fortunate that the Financial Action Task Force suspended counter measures against Iran for one year.”

Iran took a meaningful step toward upgrading its banking and financial laws closer to international standards last March with the Guardian Council ratifying a long-pending bill to counter money laundering and financing terrorism.

Earlier this month, the FATF announced it welcomed Iran’s adoption of, and high-level political commitment to an action plan to address its strategic (anti-money laundering and anti-terror financing) deficiencies.

The FATF suspended its counter-measures against Iran for 12 months in order to monitor Iran’s progress in implementing the action plan.

“If Iran fails to improve its record as promised, the FATF call for vigorous counter-measures will be reinstated. If there is improvement, the task force will consider further positive steps,” the powerful anti-money laundering body said in a statement.

FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.

Getting off the FATF blacklist, which also lists North Korea, would remove a major hurdle Iran faces in dealing with outside banks and other financial institutions. Iranian and western officials have said that is why Tehran has been pushing hard to come off the list or at least to have the current FATF warning about it softened.

Banking Reforms

Elaborating on measures taken be the CBI to manage the forex market, Komijani said, "The average market rate of the US dollar against the rial in the first quarter of current fiscal year ending June 20 experienced a year-on-year growth of 4.4% , while the difference between the official and market rates dropped to 2.4% during the said period.”

The forex market rates are currently in synch with the rate of inflation, the senior CBI official said.

He noted that liquidity grew by 2.3% during the two months ending May 20, “marking a 0.2% decline year-on-year.”

The CBI wants a "rational cut" in interest rates in tandem with the drop in the rate of the inflation. “Lowering deposit and lending rates, as well as lowering interest rates in the interbank market to 17.5% are some of the measures taken by the CBI to promote economic stability."

The inflation rate has fallen from a whopping 40% in 2013 to single digits after decades, making interest rate cuts inevitable.

“Current interest rates offered by banks are not satisfactory, since still there is a considerable gap between the inflation rate and interest rates,” Komijani told the conferees.