Iran Banks Struggle with Global Exclusion

Iranian banks are struggling to stay afloat in a global economy that's increasingly excluding them. Many international banks have stopped doing business with Iranian banks due to US sanctions.

This has made it difficult for Iranian banks to access the global financial system, leading to a shortage of foreign currency. Iranian banks are now facing a cash crunch.

The Iranian government has been trying to diversify its economy, but it's a tough road ahead. The country's reliance on oil exports has made it vulnerable to fluctuations in global oil prices.

Iran's banking system is dominated by three large banks: Bank Melli, Saderat, and Sepah. These banks are crucial to the country's economy.

The government has plans to address the banking system's issues by clearing government arrears and strengthening supervisory powers. This move aims to improve the overall stability of the banking sector.

The government's efforts are expected to have a positive impact on the country's economy, but it's worth noting that the IMF estimates public debt could be as high as 40% of GDP once government arrears to the private sector are recognized.

The complex political situation in Iran makes reforming its banking system a daunting task. The lifting of sanctions in mid-January has brought some relief, but economists believe deep reforms are still needed.

Sanctions have severely impacted Iran's banking sector, with many banks excluded from the Swift network. This has resulted in a heavy weight of non-performing loans (NPLs) and slender capital buffers.

The Central Bank of Iran has confirmed that all sanctions-hit banks have now reconnected to the Swift network, a crucial step towards recovery.

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Iran's banks are being cut off from the global banking system, a move that will isolate the country financially. This decision was made by Swift, the Society for Worldwide Interbank Financial Telecommunication, which handles almost all banking transactions.

The move will make it almost impossible for money to flow in and out of Iran via official banking channels. This will have a significant impact on Iranians living abroad who send money home.

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Iran's business activities had already been restricted by US anti-money laundering legislation, making it risky for banks around the world to do business with Iran. This legislation made trade financing a challenge for Iranian businesses.

Disconnecting Iranian banks from the global system is an unprecedented step for Swift, a direct result of international and multilateral action to intensify financial sanctions against Iran.

Re-establishing access to the SWIFT network can be a complex process, requiring significant resources and time. In 2016, Bangladesh Bank took 32 days to re-establish access after a cyber heist.

To start the re-connection process, banks must first identify the root cause of the disruption, which can be a technical issue, a security breach, or a regulatory problem.

The SWIFT network has implemented various security measures to prevent similar breaches, including the use of secure messaging protocols and regular security audits.

Banks must also comply with SWIFT's security standards, which include the use of two-factor authentication and encryption.

Re-connection to SWIFT typically requires a thorough risk assessment and the implementation of additional security controls to prevent future disruptions.

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The complex politics in Iran have been making it difficult to implement deep reforms in the banking sector.

Economists believe that despite the lifting of sanctions, which has allowed banks to reconnect to the Swift network, more changes are still needed.

The banking sector has been struggling with slender capital buffers and a heavy weight of non-performing loans (NPLs) for a long time.

Sanctions have further exacerbated the situation, with major banks being excluded from international transactions.

The government plans to clear government arrears, recapitalize banks, and strengthen supervisory powers to address these issues.

The IMF estimates that public debt could be as high as 40% of GDP once government arrears to the private sector are recognized.

This is a significant concern, as it could have far-reaching implications for the country's economy.

Bank Melli, Saderat, and Sepah are Iran's three largest banks, and they are likely to be affected by any changes in the banking sector.

The Hamburg-based Iranian-European Bank, also known as eihbank, is a unique financial institution with a fascinating history. It was founded in 1970 with the aim of facilitating trade between Europe and Iran.

eihbank has a strong presence in Germany and Iran, with its headquarters located in Hamburg and branches in Tehran and Kish Island since 2005. Its Tehran representative office started operating as an independent branch in 2008.

Due to international sanctions, eihbank's banking activities were suspended for five years. However, with the lifting of sanctions in January 2016, the bank was able to relaunch its operations.

As a result of the lifting of sanctions, eihbank can now provide banking services to its clients and business partners in Germany, Iran, and all over the world.

Iran's banking system has a rich history dating back to the 19th century. The first bank in Iran was the Imperial Bank of Persia, established in 1889.

The banking system in Iran has undergone significant changes over the years, with the establishment of the Central Bank of Iran in 1960 marking a major milestone. The Central Bank is responsible for regulating and supervising the banking sector in Iran.

The concept of Islamic banking has been a significant development in Iran's banking history, with the first Islamic bank, Bank Saderat, established in 1960. Islamic banking principles prohibit the collection and payment of interest.

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In 1960, the Central Bank of Iran was established as a banker for the government, with responsibility 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 exponentially.

By 1977, there were 36 banks operating in Iran, with 8,275 branches and a focus on trade finance and letters of credit.

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

This consolidation reduced the number of banks to nine and the number of branches to 6,581 by 1982.

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

A major scandal in 2014 saw 12 people arrested for embezzling over $4.5 billion from the Kerman branch of Tejarat Bank between 2009 and 2013.

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

Iran has a significant presence in Islamic banking, with three of the leading four Islamic banks based there. In 2009, Iranian banks accounted for about 40 percent of total assets of the world's top 100 Islamic banks.

Bank Melli Iran, with assets of $45.5 billion, came first among the top Islamic banks, followed by Saudi Arabia's Al-Rajhi Bank and Bank Mellat with $39.7 billion. Iranian banks hold seven out of the top 10 ranks and 12 of the 100 in Islamic banking.

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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Iran's banking sector is heavily regulated, with a majority of banks being state-owned. The country's banking system is primarily focused on providing basic banking services to its citizens.

The Central Bank of Iran is responsible for regulating and supervising the banking sector. It has a total of 29 authorized banks operating in the country.

Iran's banking system has been heavily affected by international sanctions, which have limited its access to global financial markets. The country's banks have had to rely on domestic deposits and funding sources.

The largest bank in Iran is Bank Melli Iran, which has over 1,500 branches across the country. The bank offers a range of services including personal and corporate banking, as well as investment and insurance products.

Iran's banking sector has seen significant growth in recent years, with the country's GDP increasing by over 10% in 2020. This growth has been driven by a combination of factors, including increased government spending and investment in key sectors.

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The Iranian rial has been subject to significant fluctuations in value, with the currency experiencing a sharp decline in value in 2018. This has had a major impact on the country's banking sector, with many banks struggling to maintain liquidity and stability.

Iran's banking sector has been working to implement new technologies and digital solutions to improve customer service and efficiency. This includes the use of mobile banking and online banking platforms.

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Iran's banking sector has a significant problem with overdue loans, with unofficial figures estimating that they have reached IR175,000bn, a 75% increase over three years.

This massive debt has put a strain on the banking system, with the current average for late debts of Iran's state banks being over 15 percent, far above the global standard of 3 to 5 percent.

Iran's General Inspection Office has reported that Iranian banks have some $38 billion of delinquent loans, while they are only capitalized at $20 billion.

The 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.

The government has planned to inject about $13 billion to recapitalize the banking sector, and 11 banks had paid a sum of $2.5 billion, with 1287 individuals filing for insolvency.

Iran's banking system is facing significant challenges, with a massive amount of overdue loans. The total amount of overdue loans has reached IR175,000bn ($17.8bn, €13.6bn, £11bn), a 75 percent increase over three years.

The government plans to address this issue by injecting about $13 billion to recapitalize the banking sector. However, this is a drop in the bucket compared to the total amount of overdue loans.

Iranian banks have a significant amount of delinquent loans, totaling US$38 billion, while they are only capitalized at US$20 billion. This means that the banks are already in a precarious position.

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The current average for late debts of Iran's state banks is over 15 percent, which is far above the global standard of 3 to 5 percent. This highlights the need for stricter lending practices.

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. This is a staggering amount that needs to be addressed.

The debts to the Central Bank of Iran are staggering. By 2009, the total debt of 11 state-run banks to the Central Bank had exceeded $32 billion, a 10-fold increase over the past four years.

This massive debt is largely due to state-run banks borrowing from the Central Bank, which in turn inflates their own balance sheets. Bank Melli Iran had the biggest debt, with nearly $9 billion, followed closely by Bank Sepah with about $4.8 billion.

The collective debt of state-sector companies to the Central Bank has reached $25 billion, a significant burden on the banking system. This is in addition to the debts of the banks themselves, which stood at 836.1 trillion rials ($27.3 billion) by the end of the fiscal year that ended in March 2016.

Private banks, on the other hand, have much lower debts, with Bank Parsian, the largest private-run bank, owing about $421 million to the Central Bank.

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