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Major Consolidation to Create Stronger Banks

The planned merger and acquisition would be a watershed event in reducing the influence of shadow banks and making the Iranian banking system more efficient
Ghavamin, Hekmat Iranian and Kowsar are among banks and credit institutions to be merged  in the next fiscal year (starting March 21).  Ghavamin, Hekmat Iranian and Kowsar are among banks and credit institutions to be merged  in the next fiscal year (starting March 21).

A new wave of mergers and acquisitions in Iran’s banking industry is aimed at creating bigger, stronger and more efficient banks, a top official at the Central Bank off Iran said.  

Farshad Heydari, the bank’s deputy for supervision, announced that three financial institutions, namely Hekmat Iranian, Ghavamin and Kowsar, are next in line to be merged in the next fiscal year (starting March 21).

He also talked about the vision of merging the two newly-created banks into a major efficient bank, CBI’s official website reported.   

According to the official, one phase of the initiative has been completed through which two unlicensed banks and credit institutions, namely Mehr Eqtesad and Samen, will be acquired by Ansar Bank.

Heydari said the new bank will start its work from the next Iranian year that starts on March 21. 

The planned consolidation would be a watershed event in reducing the influence of shadow banks and making the Iranian banking system more efficient. 

Past efforts to combat unlicensed financial and credit institutions had been hamstrung due to their ties with powerful political and military entities. 

CBI Governor Valiollah Seif and other pundits in recent months had floated the idea of bank mergers as a possible solution to the structural problems plaguing Iran’s banking system such as credit crunch, rising bad debts and failing to adhere with international standards. 

In his latest remarks, Heydari referred to the complexity of the merger process, saying that in such a procedure all the issues such as legal, cultural, social and accounting affairs should be considered. 

“Based on this plan, all the rights of beneficiaries, including the depositors and employees of these banks, will be observed,” he said. 

The official insisted that the ultimate goal of such a merger would be to create a bigger and more efficient bank, and not just to make cosmetic changes that do not solve the real problem. 

Heydari had announced on Monday that a credit line worth 200 trillion rials ($4.16 billion) backed by the properties of insolvent illegal credit institutions has been allocated to bail out the depositors, of which 185 trillion rials ($3.85 billion) have been paid to depositors.    

The unlicensed banks and lending bodies, which started out as small cooperatives in the 1990s, bloated into huge quasi lenders and took hold of a quarter of the country’s liquidity. 

In a report in February, Majlis Research Center, the parliamentary think tank, attributed the problem of shadow banks to a complicated chain of events going back to the past decades, many of which are linked to the unique socioeconomic features of Iran.

At the top of its recommendations, the body advised the central bank to act as the financial market’s sole regulator and enhance its supervisory role.

Heydari also alluded to the foreign exchange market and CBI’s efforts to regulate the largely underground business. He said that in the current fiscal, some 200 illegal currency-exchange offices have been shut down while licenses have been granted to new ones and the number of legal exchange shops has increased to 600.

“There is still the possibility that uncertified operations will take place at these certified exchange shops, so my colleagues and inspectors at the central bank are exerting complete supervision over the market and will strictly deal with any case of violation,” he said.

Heydari noted that the majority of illegal foreign currency-related activities take place outside the exchange shops, therefore tackling them will require the coordinated of CBI, police force, the judicial body and the Ministry of Intelligence.

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