As barriers for the private sector are being abolished, Iranian banks
are in the process of taking creative banking initiatives abroad. In
the coming months, a new joint venture bank is to be established in
Bahrain providing Iran with a financial bridge to the region.
Under the plan, the two biggest Iranian banks in terms of assets, Bank
Melli Iran and Bank Saderat Iran, are to join with Bahrain’s Ahli
United Bank to form a new institution called Future Bank. The new bank,
owned equally by the two Iranians and the Bahraini bank, reflects the
growing ties between the two countries and provides a new vehicle for
the Iranian banks’ involvement in the region.
Regional bridge
Future Bank, which has an initial paid-up capital of $50m, is expected
to begin operations in the first half of 2004. Designed as a global
bank with no specific Islamic remit, it intends to focus on corporate
and wholesale business. “It is an important deal,” says Bank Melli
chairman, Dr Valiollah Seif. “It will help to promote financial
relations between the two countries, bolstering trade ties and building
the regional financial infrastructure.”
Like Dubai, the Bahrain business community has historically had close
relations with Iran and the joint venture represents a significant move
in the direction of closer co-operation. Future Bank is expected to
acquire the assets and liabilities of the Iranian bank branches in
Bahrain and the region, and act as a hub for the Iranian banks in the
area.
Ahli United chief executive Adel El-Labban, says: “As a regional bank,
we are interested not just in the Gulf Co-operation Council (GCC)
states but also Iran and Iraq, and we believe this new bank is an
important way of acquiring business in the regional economy.”
Limited role
While Iranian banks are deregulating and moving abroad, however,
foreign banks are constrained by regulation. Although itching to get
more actively involved in Iran’s growing economy, foreign banks are
effectively limited to their representative offices and this looks
unlikely to change in the near future.
In recent years, foreign banks have been given permission to operate
branches in free zones, such as the island of Kish in the Gulf. But no
bank has been granted a full banking licence and hence the foreign bank
presence in Iran revolves around the 40 representative offices based
largely in Tehran. Some banks, such as Standard Chartered – which used
to operate as a joint venture in Iran between 1959 and 1979 and set up
a representative office in 1991 – may establish a branch in Kish but
the free zones do not appear to be attractive to the foreign banks at
this stage.
Given the plans to reform and privatise the Iranian banks, the central
bank of Iran (Bank Markazi) is not anxious to change the status quo at
this transitional stage and allow foreign banks to operate fully on the
mainland. As in China, the Iranian authorities seem keen to improve the
efficiency of the domestic banks before further lowering of competitive
barriers to foreign banks. “Over the next 18 months, there will be no
crucial movement for foreign banks,” notes Sousan Nikoopour of Credit
Suisse in Tehran.
On the radar
Iran is firmly on many banks’ radar screens, though. HSBC set up a
representative office in Tehran in 1999 after an absence of four
decades and has won some key financing mandates. Dr Nasser Homapour,
HSBC representative in Tehran, was recently quoted as saying that Iran
is too prosperous to ignore. With 65 million people, the world’s second
largest gas reserves and relatively low levels of debt, foreign bankers
are aware of the considerable opportunities at hand. And banks, led by
Standard Chartered, HSBC, Deutsche Bank, Commerzbank and Credit Suisse,
are keen to expand their trade finance and correspondent banking roles.
While political differences with the US have tended to hamper Iran’s
business potential, the environment is changing and many banks are
ready to seize the opportunities when the reform process opens the
market further. Participating directly in the bank privatisation
process is, however, off limits for foreign players. Unlike central
Europe, where foreign bank involvement has significantly improved the
domestic sectors, bankers believe that an operational role and
ownership participation are still a long way off.
