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Minimum Capital for  FTZ Banks Lowered
Minimum Capital for  FTZ Banks Lowered

Minimum Capital for FTZ Banks Lowered

The council had earlier restricted the scope of international banking operations only to banks and their subsidiary units, which has not been revoked or revised since

Minimum Capital for FTZ Banks Lowered

Money and Credit Council decided at its Tuesday meeting to lower the minimum capital requirement to establish a bank in free trade zones from the previous €150 million to €100 million.  

The move is an about-face for MCC since the decision-making body had only recently set the capital requirement for banks in free trade zones at €150 million, Banker.ir reported.

Akbar Torkan, a presidential advisor and secretary of the High Council of Free Zones, was among the critics of the higher ceiling, saying that it would deter investors from setting up banks in FTZs.

"The fact that the minimum capital required to establish a bank in free trade zones has increased from €25 million to €150 million means that the process of establishing foreign banks in these zones will become harder and slower, which will change the equation altogether," the official, who is also a top presidential advisor, had said.

It was said at the time that the new standard has been introduced to help ensure capital cushions for lenders against possible risks and also boost operations and future growth.

The council had earlier restricted the scope of international banking operations only to banks and their subsidiary units, which has not been revoked or revised since. This means that no non-bank financial and credit institutions are allowed to engage in international operations.

Considering that each euro currently trades for nearly 40,000 rials, domestic founders of banks need about 4 trillion rials to establish a bank in a free trade zone, which is four times the figure first adopted by MCC. This amount currently equals the amount required to establish a bank on the mainland.

As per the law, foreigners are allowed to own up to 40% of bank shares on the mainland while in the free zones they can open banks with 100% equity.

The government is providing tax exemptions and easier visa regulations for free trade and industrial areas to facilitate business activities of foreigners.

The decline in minimum capital also comes on the heels of objections made by managing directors of free trade zones to MCC regarding its decision to increase the ceiling by six times.

When MCC ruled for the €150 million minimum capital requirement, CBI said the decision had been made to improve the conditions under which reputable international banks with adequate capital and banking experience could operate in free trade zones.

With the increase in minimum capital requirement, CBI had argued that banks will be able to compensate for any possible losses, cover risks, guarantee stability and have a suitable credit and lending capacity.

On Tuesday, the MCC decreed for the first time that savings and loan associations pertaining to the housing sector are allowed to be established.

"With the goal of helping with the financing of housing sector by absorbing minor savings and allocating housing loans, and according to the Act 2 of Article 7 of the law to revive, improve and renovate distressed urban areas ratified by the government, MCC approved the operating license for the founding of savings and loans associations," reads CBI's official statement published on its website.

 

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