Relaxed Capital Rules Entice Overseas Interest in FTZ Banking

The recent €50 million cut in the minimum capital requirement to set up a bank in the free trade zones has prompted foreign investors to accept conditions set by the Central Bank of Iran and announce their readiness to invest in Kish Island, says the deputy head of the Kish Free Zone Organization.

"Several foreign investors have said they are prepared to invest in a bank in Kish and they have accepted the CBI conditions to establish offshore banks," Ali Jirofti said in a talk with ILNA.

In early September, the Money and Credit Council lowered the minimum capital requirement for a bank in the FTZs from €150 million to €100 million. The decision-making body's move was regarded as a U-turn as it had only recently set the €150 million condition.

Noting that the initial increase in the capital requirement had created a variety of problems for foreign investors wanting to start an offshore bank, Jirofti said investors had expressed readiness with the earlier conditions but did not find the new capital requirement agreeable.

"Under the new circumstances the investors have said they are ready again," he added.

Before all the recent demands and changes, the minimum capital requirement to establish a bank in the FTZs was €25 million which rendered the €150 million minimum unfeasible leading to much criticism. A presidential advisor and secretary of the High Council of Free Zones was among the critics of the higher ceiling, saying it would deter investors from opening banks in the FTZs.

"The fact that the minimum capital required to establish a bank in the FTZs has increased from €25 million to €150 million means that the process of establishing foreign banks in the zones will become harder and slower, which will indeed change the dynamics altogether," Akbar Torkan said.

Jirofti said European and Asian investors are eager to open offshore banks in Kish Island, "but they have not yet provided the necessary paperwork."

The deputy for economic affairs and investment at the Kish Free Zone Organization noted that a definite timeline cannot be set regarding the results of investments in the FTZs.

"That is because the Money and Credit Council and the central bank have to ascertain the credibility of investors."Starting this process depends entirely on CBI policies."

When the MCC ruled in favor of the €150 million minimum capital requirement, the CBI said the decision was made in order to improve conditions under which major international lenders with adequate capital and banking experience could operate in the free trade zones. With the increase in minimum capital requirement, CBI had then argued that banks will be able to compensate possible losses, cover risks, guarantee stability and have a desirable credit and lending capacity.