Economy, Business And Markets

Iran Banks Catching Up After Years of Isolation

Iran Banks Catching Up After Years of Isolation  Iran Banks Catching Up After Years of Isolation

After years of isolation left them with outdated practices, banks in Iran are trying to fall in line with international norms of transparency, attract more business and integrate with the global industry. The Central Bank of Iran has instructed them to set up compliance departments and risk management programs and embrace globally-acceptable accounting practices so the economy can benefit (as expected) from the easing of international sanctions under the 2015 nuclear deal.

The central bank “felt the need to address and resolve the issues our banks have,” Vice Governor Peyman Qorbani said in an interview on the sidelines of the Frankfurt European Banking Congress. “Good steps have been taken,” Bloomberg reported.

Businesses say the outmoded and opaque practices have created additional hurdles for foreign banks considering working with Iran after the nuclear accord. Major European banks are still wary of resuming business ties with the Islamic Republic for fear of running into remaining US sanctions that apply to non-nuclear activities. Iranian officials say the hesitation is holding up plans to help the economy, despite their country’s compliance with the accord.

  Internal Housekeeping

Large foreign lenders are mostly hesitating over “the internal housekeeping of Iranian banks,” said Reza Soltanzadeh, board member of the Tehran-based Middle East Bank.

Policymakers have taken “very good measures” regarding capital adequacy ratios and anti- money-laundering procedures, and banks are working hard to comply, he said.

A number of smaller lenders are being audited to “restore trust to the system,” said Soltanzadeh. “But this will take time for the larger banks.”

Iran has both an official exchange rate to the dollar and another rate used in unregulated markets. The implementation of the nuclear accord in January has energized plans to unify the exchange rates, but “long-term and sustainable unification” also needs good corresponding relationship with larger banks, Qorbani said.

“We are taking steps and are not in a rush,” he said. “We want to make sure that the preconditions are there.”

While Iran sees the involvement of large European banks as essential to reviving the economy, it has also expanded its corresponding relationships to 240 banks, including small and medium-size lenders, Qorbani said.

As the central bank nudges lenders closer to international standards, the Iranian legislature is taking steps to strengthen the regulator’s independence and supervisory powers. The measures -- the Central Bank Act and the Banking Act -- are to be submitted “soon” to parliament, Qorbani said.

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