Banks in Iran are trying to catch up with the rest of the world.
After years of isolation left them with outdated practices, now they are trying to fall in line with international standards of transparency so they can better attract business and integrate with the global industry. The central bank has instructed them to set up compliance departments and risk management programs, and to implement globally accepted accounting practices so the economy can take better advantage of the easing of international sanctions under the 2015 nuclear deal.
The central bank “felt the need to address and resolve the issues our banks have,” Vice Governor Peyman Ghorbani said in an interview on the sidelines of the Frankfurt European Banking Congress. “Good steps have been taken.”
Businesses say the outmoded and opaque practices have created additional hurdles for foreign banks considering working with Iran after the nuclear accord. Major European banks are still wary of resuming business ties with the Islamic Republic for fear of running into remaining U.S. sanctions that apply to non-nuclear activities. Iranian officials say the hesitation is holding up plans to help the economy, despite their country’s compliance with the accord.
Internal Housekeeping
Large foreign lenders are mostly hesitating over “the internal housekeeping of Iranian banks,” said Reza Soltanzadeh, board member of the Tehran-based Middle East Bank.
Policy makers have taken “very good measures” regarding capital adequacy ratios and anti- money-laundering procedures, and banks are working hard to comply, he said.
A number of smaller lenders are being audited to “restore trust to the system,” said Soltanzadeh. “But this will take time for the larger banks.”
Iran has both an official exchange rate to the dollar and another rate used in unregulated markets. The implementation of the nuclear accord in January has energized plans to unify the exchange rates, but “long-term and sustainable unification” also needs good corresponding relationships with larger banks, Ghorbani said.
“We are taking steps and are not in a rush,” he said. “We want to make sure that the preconditions are there.”
While Iran sees the involvement of large European banks as essential to reviving the economy, it has also expanded its corresponding relationships to 240 banks, including small and medium-size lenders, Ghorbani said.
As the central bank nudges lenders closer to international standards, the Iranian legislature is taking steps to strengthen the regulator’s independence and supervisory powers. The measures — the Central Bank Act and the Banking Act — are to be submitted “soon” to parliament, Ghorbani said.
Source: Bloomberg