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Middle EastDecember 1 2004

Seeds of success

Bank Keshavarzi has transformed itself from a sleepy rural bank into a dynamic funding force that has invigorated Iran’s agricultural sector.
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It is rare that a specialised bank dedicated to the development of a particular sector, such as agriculture, achieves significant market growth, improved productivity and national success. However, Bank Keshavarzi (BK) in Iran, under the direction of its chairman and managing director, Jalal Rasoulof, has achieved not only a remarkable transformation in the bank’s own effectiveness and profitability but has managed to provide an important financial stimulus to the under-funded agricultural sector.

Dramatic expansion

BK spent almost 70 years as a sleepy rural bank. However, in the past five or six years, it has injected vigour into the overall banking sector with its range of new retail products and approaches. And the dramatic expansion of the customer and deposit base in the cities has been able to fuel an equally dramatic increase in agricultural financing. Mr Rasoulof notes with pride that, after 45 years of importing wheat, Iran is now self-sufficient in that staple along with two others, meat and milk.

BK now provides more than 70% of the total financial resources available for agriculture and dominates the role played by the government. Mr Rasoulof notes that BK provided IR28,754bn ($3.27bn) in disbursements to the agricultural sector in 2003-2004, more than 14 times that provided by government. This compares with IR6791bn in disbursements in 1998-1999, when the bank provided only 8.2 times the funding from government.

Growth in deposits

The key to BK’s enhanced role has been the extraordinary development of the bank’s customer and deposit base. Back in 1995, the bank had four million accounts but, in the past five or six years, the number of customers has jumped to today’s total of 19.2 million and this has naturally produced a massive growth in deposits. From less than 1% of the aggregate banking deposits in 1995, the bank now accounts for IR34,305bn or 6.3% of aggregate banking deposits. This is a huge increase in market share and the 1827 branches in cities and rural areas now set the standard for retail banking.

According to a study entitled Measuring the Credit Impact of Bank Keshavarzi on the Value Added in the Agriculture Sector, the value added increased by at least 0.15% for every percentage increase in disbursed credits from BK. The growth of disbursed credits of the bank with a fixed price in 2002 was about 47.1% and at least 30% of the growth announced by the agriculture sector in 2002 (10.1%) was derived from BK’s disbursed credits

One of the problems the bank has faced in the past is the dependency on the borrowing resources from the commercial banks and the government. Increasing the bank’s financial self-reliance was another objective.

The BK’s share of total deposits within the banking system has increased from 2.95% in 1998 to 6.3% in 2003. Also, the ratio of the bank’s deposit balance to total debts and equities has developed from 35.4% in 1998 to 52.5% in 2003. Along with this financial self-reliance, the bank has improved profitability from IR0.3bn in 1998 to IR1134bn in 2003.

New technology

In another development, BK has planned a new electronic and core banking system with an Australian software provider. This software is expected to be installed and operational in 300 branches by the end of the first quarter of 2006. Following this initial phase, 600 more of the bank’s main branches will be added to this list, offering various types of accounts, business and personal loans, branch foreign exchange and trade finance services, customer information and other delivery channel services.

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