Iran's Banking and Insurance Landscape Explained

Iran's banking system is heavily regulated, with the Central Bank of Iran (CBI) overseeing the sector. The CBI sets interest rates and regulates foreign exchange transactions.

Iran's banking landscape is characterized by a mix of state-owned and private banks. The state-owned banks, such as Bank Melli Iran and Bank Mellat, dominate the market.

Iran's insurance industry is also heavily regulated, with the Insurance Regulatory Office (IRO) responsible for supervising insurance companies. The IRO sets minimum capital requirements and regulates insurance rates.

Iran's banking and insurance sectors are subject to international sanctions, which has limited their access to global markets and technology. This has hindered their ability to compete with international banks and insurance companies.

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More than 90% of the economy depends on the banking system for financing, but it's not efficient enough to circulate large sums of liquidity in the country.

The banking system is often blamed for the bankruptcy of many small and middle-sized enterprises, especially during the recent economic downturn.

The insurance industry has shown potential for profitability, but due to a lack of confidence in insurance institutions in Iran, its penetration rate is still only 1.2%.

However, the idea is changing, with a significant increase in the share of non-mandatory insurances in the total value of premium incomes, reaching 57%.

With $324 million in liquidity volume in the country, many small and middle-sized enterprises have gone out of business due to lacking modern banking systems and financial management.

The insurance industry's share of GDP is a mere 2% at the moment, and it needs to utilize modern and innovative methods of branding and marketing to improve its presence.

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The banking system in Iran has made significant progress in recent years. As of 1994, private credit institutions have been authorized by the central bank of Iran, known as Bank Markazi.

The Iranian government has been liberalizing the banking system since 2001, with some success. Partial privatization of commercial banks has occurred, and recapitalization has been achieved.

Subsidized credit is offered in certain areas, but the central bank still exerts a great deal of control, with extensive regulations in place.

Commercial banks in Iran are authorized to accept various types of deposits, including checking and savings deposits, and term investment deposits. They can also use promotional methods to attract deposits.

Commercial banks are allowed to engage in activities like joint ventures, direct investments, and limited trade partnerships, except for underwriting imports. However, they are prohibited from investing in the production of luxury and nonessential consumer goods.

The financial sector in Iran has a significant amount of liquidity, with about $260 billion, which is roughly 65% of the country's GDP.

Commercial banks in Iran may also engage in authorized banking operations with state-owned institutions, government-affiliated organizations, and public corporations.

Electronic banking has made a significant impact in Iran, with the Shetab system being introduced in 2002. It's an interbank information transfer network that facilitates electronic banking operations.

The adoption of electronic banking has been rapid, with at least 57,000 active ATMs in Iran as of 2019. This shows how widely accepted electronic banking has become.

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Shops, restaurants, and online stores are connected to the Shetab system and accept debit cards. This convenience has likely contributed to the popularity of electronic banking.

Mobile and SMS banking have recently been added to the Shetab system. This integration of mobile technology has further enhanced the electronic banking experience.

As of 2019, 30 Iranian banks are members of the Shetab Banking System. This indicates the level of cooperation and standardization in the industry.

The Shetab system permits ATM, POS, and other card-based transactions. This has streamlined financial transactions and made them more efficient.

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Iran's banking sector is facing a significant challenge with overdue loans reaching IR175,000bn, a 75% increase over three years.

This staggering amount of IR175,000bn is equivalent to $17.8bn, €13.6bn, or £11bn.

In 2009, Iranian banks had some $38 billion of delinquent loans, while they were only capitalized at $20 billion.

The current average for late debts of Iran's state banks is over 15 percent, which is much higher than the global standard of 3 to 5 percent.

Non-performing loans peaked at 17 percent of total loans in 2013, representing almost 10 percent of non-oil gross domestic product, according to the IMF.

A total of 1287 individuals filed for insolvency, and 11 banks paid a sum of $2.5 billion to settle their debts.

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Iran and Syria have taken a significant step in boosting their economic and trade ties with the launch of a joint bank and insurance company.

The Iranian economy minister, Ehsan Khandouzi, made the announcement after meeting with Syrian officials in Tehran. He expressed hope that this new chapter in economic relations between the two countries will bring about increased investment and trade.

The joint bank has a shareholding ratio of 60% for the Iranian side and 40% for the Syrian side, while the joint insurance company is a result of a consortium of Iranian insurance companies partnering with the Syrian side.

Iranian businessmen and investors will now have greater ease in financial and banking transfers in Syria, and will also be able to use insurance services in the country in a special way.

The joint bank and insurance company are expected to be the driving forces behind investment between Iran and Syria, according to Minister Khandouzi.

Key details of the joint bank and insurance company:

Deposit rates can vary significantly depending on the term of the deposit. For example, in 2011, the provisional profit rate for five-year deposits was 15% per annum.

In 2008, the rate for five-year deposits was a range of 15-18.5% per annum. It's worth noting that this range covers the different interest rates offered by different banks.

The maximum interest rate for deposits of 90 days or less is set at 10 percent. This cap was implemented as of April 2014.

For deposits of more than one year, the maximum interest rate is set at 22 percent. This rate applies as of April 2014.

The rate for short-term deposits is set at 10 to 14 percent, as agreed upon by bankers in 2016. This rate applies to one-year deposits.

Here's a summary of the interest rates for different deposit terms as of 2011:

Iranian banks have a significant presence in the Islamic banking sector. They accounted for about 40 percent of total assets of the world's top 100 Islamic banks in 2009.

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Three of the leading four Islamic banks are based in Iran, with Bank Melli Iran holding the top spot with assets of $45.5 billion.

Bank Melli Iran was followed by Saudi Arabia's Al-Rajhi Bank, Bank Mellat with $39.7 billion, and Bank Saderat Iran with $39.3 billion.

Iranian banks dominate the Islamic banking landscape, holding seven out of the top 10 ranks and 12 of the 100.

Islamic finance is the fastest-growing segment of the global financial system, with sales of Islamic bonds predicted to rise by 24 percent to $25 billion in 2010.

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The insurance industry in Iran is dominated by the Iran Insurance Company, but there are many other major players in the market.

There are at least 27 major insurance agencies operating in Iran, with 26 of them actively involved in commercial insurance.

Automotive insurance generates most of the premiums, which is no surprise given the high number of vehicles on the road in Iran.

It's estimated that around 90% of all vehicles in Iran are insured.

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In Iran, financial reports are a crucial aspect of banking and insurance. Financial institutions in Iran are required by law to submit regular financial reports to the Central Bank of Iran.

Iran's banking system has undergone significant reforms in recent years, with the introduction of new regulations and standards for financial reporting. This has led to increased transparency and accountability in the sector.

The Central Bank of Iran has implemented a robust system for monitoring and regulating financial institutions, including regular audits and inspections. This has helped to maintain stability and confidence in the financial system.

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The official provisional rate, also known as the "Mobadala", was 12.0% in 2007.

This rate remained steady at 12.0% in 2009.

In 2008, it dropped slightly to 11.5%.

The free market rate, on the other hand, was significantly higher at 24-25 percent in August 2009.

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In 1960, the Central Bank of Iran was established as a banker for the government, responsible for issuing currency.

The Central Bank of Iran's functions were further defined in 1972, making it a central bank responsible for national monetary policy.

The expansion of economic activity fueled by oil revenues in the 1960s and 1970s increased Iran's financial resources, leading to a surge in demand for banking services.

By 1977, 36 banks with 8,275 branches were in operation, with trade finance and letters of credit being their main sources of revenue.

The government nationalized domestic private banks and insurance companies after the Revolution, changing the bank law to conform to Islamic banking regulations.

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This led to a consolidation of banks, reducing the number from 36 to 9 by 1982, and the number of branches from 8,275 to 6,581.

The government began to privatize the banking sector in 2001, issuing licenses to two new privately owned banks.

As of 2011, about 80% of the country's wealth was deposited in state banks, while the remaining 20% was deposited in private banks.