German bankers have expressed enthusiasm in establishing normal banking links with Iran, the governor of the Central Bank of Iran says.
Speaking at a meeting with managers of Bank Melli Iran on Tuesday, Valiollah Seif expressed satisfaction over the outcome of his recent visit to Germany that was geared to persuading German lenders to get over their fears in doing business with Iran.
"Fortunately during the trip we witnessed the interest of German bankers in reestablishing correspondent banking relations," the CBI website quoted him as saying.
Last week, Seif met with Jens Weidmann, the President of the Deutsche Bank to discuss ways to enhance banking cooperation between the Frankfurt-based lender and Iranian banks. He also met with presidents of AKA Bank and DZ Bank.
After Iran's nuclear deal with major world powers in the July of last year, German companies were among the first to start investment negotiations with Iran.
Last month the Persia International Bank–a Iranian-owned British lender was connected to TARGET 2 interbank payment system, thanks largely to support from Deutsche Bundesbank, Germany's Central Bank, which is the most powerful and influential central bank in the eurozone.
Seif was also scheduled to meet with the US Treasury, then British Foreign Secretary Philip Hammond and representatives of international banks in London last week but the meeting was cancelled due to undisclosed reasons.
Calling the Joint Comprehensive Plan of Action–the nuclear deal– a "turning point in Iran's history", the CBI chief said while the full effects of the historic agreement have yet to become manifest on the economic landscape, the CBI is drawing on most of the new capacities created by the accord.
"It can be said that the full realization of the JCPOA will entail a huge change for the country and we are trying to create a suitable atmosphere for the development and growth of international economic collaboration," he told the banking officials.
Resistance Economy
Stating that restoring stability to the economy is the main goal of the Resistance Economy (a set of guidelines by Leader Ayatollah Seyyed Ali Khamenei to foster economic self-reliance), he proposed a "mechanism to safeguard the economy from external shocks" as the main prelude to improving economic growth.
"Investors will put their money where they have the ability to predict what comes next," he said. "With more forecasting power within our economy, more long-term investments will be made and if predictability is low, the economy will tend toward speculation and production will be harmed."
Seif said the Ministry of Industries and Trade with help from the Management and Planning Organization has moved to implement the plan of allocating 160 trillion rials ($.5.1 billion) in loans to 7,500 small and medium-sized enterprises. He opined that this amount of new lending will not subject the struggling banking system to added pressure.
In line with the goals of Resistance Economy and to promote economic growth, the CBI has disregarded the mountain of distressed debt of the SMEs and is willing to lend on one key condition."
"And the condition is that these companies increase their production capacity and produce goods that are marketable."
Currency Market Stability
Referring to control over the foreign exchange market over the past few years, the governor said the CBI is obliged to prevent shocks in the market.
"Our currency system is a managed floating system and while forex rates are not fixed (by the government), they move within certain limits. Furthermore, forex rate unification must be premised on the realities of the economy and it is imperative that we steer clear of extreme measures," Seif said.
He warned that hasty and uncalculated measures would harm not help. "We will witness a big increase in foreign exchange rates like before."
The central bank chief took note of three decades of non-stop service the banking industry has offered to the domestic economy, saying unreasonable expectations from banks have weakened the banking infrastructure. "Balance sheets are in trouble. The capital levels of banks have dwindled while government debts are on the rise, which in turn have transformed 45-50% of bank holdings into toxic assets."
And that is not the end, he cautioned. "A credit crunch created by the cut-throat competition of banks and the unregistered credit institutions has unleashed a war of interest rates," on deposits and loans he said, hoping that the banking reform plan initiated by President Hassan Rouhani would address most of the challenges.
