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Wide Support for Bank Mergers

Wide Support for Bank Mergers
Wide Support for Bank Mergers

The possibility of mergers in the Iranian banking system accelerated with the recent announcement by the Central Bank of Iran’s Governor Valiollah Seif that the motion could be used as a solution for low-profit banks since it helps them reduce their expenses while easing the process of standardizing their financial statements and banking operations.

In the wake of Seif’s comments, many experts and bankers welcomed the idea, saying it could provide a ray of hope for the beleaguered industry.

 Parviz Aqili Kermani, a well-known banker, economist and the CEO of Middle East Bank, believes bank mergers should proceed since that awakens some of these banks to their situation, forcing them to either acquiesce to consolidation or get out of the way.  

Kermani emphasized the importance of complying with Basel III standards, deeming it the solution to the banking system’s current crisis.

“If Basel III is implemented, banks will realize what a critical situation they are in; some will realize that they have a negative capital adequacy ratio,” he added.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision to strengthen the regulations, supervision and risk of the banking sector while improving their transparency and disclosures.

“We have to be realistic in reforming the banking system. Basel III is a necessity and should be on banks’ agenda as soon as possible,” he said.

Kermani, however, said reforms will probably eliminate a number of banks that were not necessarily bankrupt.

The banking expert noted that customers’ deposits must stay intact during the process to keep their trust.

  First Moves

Although there is no official confirmation about which banks will be the first to strike up mergers, officials are talking about the banks and credit institutions affiliated to armed forces as being the first in line.

One reason is that these banks have a monolithic shareholder structure and hence a less chance of a dispute or disagreement.

“Banks and credit institutions affiliated to armed forces started negotiations with CBI to start the process of merger a few months ago and preliminary agreements regarding the issue have been reached,” an unnamed  banking official told MNA.

The official added that CBI is very sensitive about merger of banks and considers all aspects during negotiations, but since armed forces have established many banks and credit institutions in the past few years with almost the same shareholders, it seems likely that they would face fewer issues.

Other banking experts also believe that the idea of merging armed forces’ banks is rational and could set a good example for other banks to engage in.

Mohammad Reza Jamshidi, secretary-general of the Private Banks and Credit Institutions Association, also said a merger could be profitable for these banks. 

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