Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Middle EastDecember 1 2004

Refreshed by reform

Iran’s reformers are keen to promote economic growth, which is leading to a resurgence of interest in the country’s private banks. Stephen Timewell reports.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Before the revolution in 1979 there were 24 privately owned banks operating in Iran but after 1979 these were all nationalised and, along with the 32 state-owned banks and other joint ventures, the banking sector was boiled down into around 10 state-owned institutions.

While many of today’s large state banks started off as amalgams of various private banks, they soon lost their private roots and by the 1990s had adopted an all-embracing state-sector culture. The idea of the privately owned bank, however, had not disappeared altogether – just as the bazaar was still alive and well.

As the 3rd Development Plan (2000-2005) emerged, the planners went back to their past and enacted the necessary laws to allow for the formation of new private banks. In recent years, four private institutions have been established: EN Bank, Karafarin Bank, Parsian Bank and Saman Bank. According to the vice-governor of Bank Markazi, M Jafar Mojarrad, in an interview with The Banker (see page 111), another two private banks are on the way.

Why all this interest in privately owned banks? Clearly, the reformers in government have been keen to boost economic growth and reduce high unemployment by any means possible and, in part, these four private banks represent a warm-up act for the planned privatisation of five large, state-owned banks. Although there has been some vocal opposition to privatisation and to the private banks by certain hardliners, the reformers seem to be getting their way and the market is showing plenty of support.

Bahram Fathali, executive director of Parsian Bank, the largest of the privately owned banks, says: “They are not just surviving, they are flourishing.” Mr Fathali explains that not only have all four increased their capital in the past year, but they have also increased their deposits and their number of branches.

“The public has more confidence in the privately owned banks; we can do everything that Bank Melli (the largest state-owned bank) can do and the concept of the private bank is gaining momentum.”

Heightened expectations

Mr Fathali insists that the introduction of the private banks has raised the level of expectations of bank customers and changed attitudes within the state-owned banks.

“Society is really interested in getting the banking service it wants and it is prepared to pay for it. This has had an impact on the state-owned banks and they are re-examining their approach. I suggest the setting up of private banks has been of benefit to all – good for customers, good for the larger banks and also for entrepreneurs – and I hope this trend will continue.”

Mr Fathali believes that the government’s changes to Article 44 of the Constitution have not only helped in setting up the private banks but also paved the way towards privatisation of the major banks. While he recognises that certain factions prefer a more centralised system and statist ideologies cannot be expected to disappear overnight, he believes: “Now, gradually, in order to regenerate the economy and create jobs, you have to give a freer hand to the private sector and this is the way it will go – cautiously but towards a greater role for the private sector.”

The private banks, led by Parsian, have made strong inroads into the deposit market. With accumulated aggregate deposits of more than IR30,000bn ($3.4bn), the four banks have attracted a healthy 5.5% of the deposit market in just a few years, says Mr Fathali. In these vibrant conditions, with increasing confidence in the new sector, he believes that this market share could rise to 7%-8% in the next year, which would be a significant achievement.

These banks are also getting recognition at the Tehran Stock Exchange (TSE). Both EN Bank and Karafarin Bank are listed and well traded at the TSE, while Parsian expected to begin trading last month and Saman Bank expects to begin trading next year.

Parsian Bank

Established in September 2001, Parsian has expanded rapidly. Deposits increased by 423% to IR7152bn in the year to March 20, 2004, and more than doubled to more than IR16,000bn by early November. Parsian’s current deposits exceed those of the other three private banks combined.

The bank has focused not only on being the leader in banking cards but also in bank branches. By November 2004, it had built up a network of 46 branches, all linked online, including one in the free trade zone of Kish.

Mr Fathali expects the number of branches to rise to between 70 and 80 by March 20, 2005 – more than all the other private banks put together. The bank has also established a leading position with 4900 point-of-sale (PoS) terminals, ahead of the other three banks combined and has also issued 250,000 credit cards. Parsian, which also issues debit cards and pre-paid cards, expects to have issued 400,000 credit cards by the end of the financial year in March.

Unlike the bigger banks, Parsian has no automated teller machines (ATMs). Mr Fathali says they have not been a success in Iran because the relatively small size of the largest Iranian banknote makes ATMs unable to cope with large transactions.

EN Bank

Established in August 2001 as Iran’s first privately owned bank, EN Bank has quickly expanded its branch network and capital base, and has focused on a strategy that puts corporate banking ahead of retail banking.

Speaking to The Banker, executive vice-chairman Dr A Zeini explained that EN expected to expand its current 21 branches to 28 by March 2005 and expected to sign up to a joint ATM facility with three of the large state banks, as well as co-operating with Bank Tejarat across nine lines of business.

“The great advantage we have over the state-owned banks is that we can pay fair salaries so we can attract the cream of the quality staff available,” says Mr Zeini. “Also we are well regulated by the central bank, our IT is good and new, and we are increasingly attractive. Although we are more expensive than the state banks – we charge 27% while the state banks charge 17% – people still prefer to come to us because they get special service and accuracy.”

The bank, which has doubled its paid-up capital to IR500bn in the six months to September 21, 2004, passed a resolution in May this year to increase tenfold the authorised capital from $29.5m to $294.9m over a four-year period.

EN Bank has been well received by the TSE. After floating last February at an initial price of IR3700 per share, in early November shares were trading at IR10,020. Further growth is expected because EN Bank is about to establish an insurance subsidiary and expand its corporate capabilities.

Saman Bank

Set up in 2002, Saman Bank is also focused on expanding its national branch network and boosting its capital base. In October this year, it doubled its paid-up capital from $40m to $80m and, according to spokesman Toraj Kakvand, it hopes to double its capital again next year to $160m following a listing at the TSE.

The bank has 21 branches (six in Tehran), 28 ATMs and 100 PoS terminals. It is planning further branches across the country, including an offshore facility in Kish Island, and expects to have 25 branches by March 2005 and 35 by March 2006.

Concentrating on effective IT developments, Saman is the first Iranian bank to offer internet banking services and has also developed its ATM and PoS facilities. In the year to March 20, 2004, it made pre-tax profits of IR115bn, slightly above those of EN Bank but well below the IR192bn pretax profits achieved by Parsian.

Mr Kakvand insists that, although Saman’s credit rates at 26%-28% and one-year deposit rates of 17% are well above the state banks’ one-year deposit rates of 8%, Saman offers the best customer service, much better than the state-owned banks.

Originally founded as the Karafarinan Credit Institute in 1999, Saman was converted into a bank in January 2001. Its vision is to become a bank of the future with a sustainable growth policy. The 10-branch structure produced pre-tax income of IR79.7bn ($9.8m) for the 12 months to March 20, 2003, and the unaudited results for the 11 months to February 19, 2004 show improved pre-tax profits of IR123.6bn ($14.8m).

Was this article helpful?

Thank you for your feedback!

Read more about:  Middle East