Banking and insurance in Iran

Part of a series on financial services
Banking
Types of banks Advising Banq Bulge bracket Central Commercial Community development Cooperative Credit union Custodian Depository Development Direct Export credit agency Investment Industrial Merchant Middle market Mutual savings Neobank Offshore Participation Payments Postal savings Private Public Retail Savings Savings and loan Universal Wholesale Bank holding company Lists of banks
Accounts · Cards Accounts Christmas club Deposit Money-market Savings Time deposit (Bond) Transaction (checking / current) Cards ATM Credit Debit Prepaid
Funds transfer Cheque Card Electronic Bill payment Mobile Wire RTGS NS ACH Instant payment Giro SWIFT Correspondent account CLS CIPS SPFS BRICS PAY
Terms Automated teller machine Bank regulation Loan Mobile banking Money creation Bank secrecy Ethical banking Fractional-reserve banking Full-reserve banking Islamic banking Private banking
Related topics Financial market (participants) Corporate finance Personal finance Public finance Financial law Financial regulation List of banks
Category Commons Portal
v t e

Following the Iranian Revolution, Iran's banking system was transformed to be run on an Islamic interest-free basis. As of 2010 there were seven large government-run commercial banks.^[1] As of March 2014, Iran's banking assets made up over a third of the estimated total of Islamic banking assets globally. They totaled 17,344 trillion rials, or US$523 billion at the free market exchange rate, using central bank data, according to Reuters.^[2]

Since 2001 the

In 1960 the

The government began to privatize the banking sector in 2001 when licenses were issued to two new privately owned banks.^[5]

In 2011, seven state-owned and private Iranian banks were involved in a

In 2014, Iranian authorities arrested 12 people for embezzlement of more than $4.5 billion (3.6 billion euros) from the Kerman branch of Tejarat Bank from 2009 until their arrest in 2013.^[9]

Types of financial institutions

As of 2011, about 80% of the country's wealth was deposited with state banks and the remaining 20% with private banks.^[citation needed] Iran's financial institutions are:^{[citation needed]}

• Banks
• Finance & Credit Institutions
• "
  Gharzolhasaneh
  " Funds (Islamic non-profit granting funds -replicate many of the functions of smaller-scale credit providers)

Islamic banking

As of 2009, the

As of 2010, the interest rate charged between banks (i.e. interbank rate) is set by the

Official "provisional" lending rate (aka "Mobadala")

12.0% (2007), 11.5% (2008), 12.0% (2009).^[15] Free market rate is 24-25 percent (Aug 2009).^{[citation needed]}

Deposit rates

As of 2010, private banks have acquired 11 percent of the whole money market in Iran.^[14]

* The range given covers the different interest rates offered by different banks. In 2010, for the first time in annual policies, the interest payable on bank deposits is similar for both state-owned and privately owned banks. For example, overnight deposits’ interest has been reduced from 12.5% last year to 9% this year. Similarly, 5-year term deposits will now earn 17.5% (per annum) interest, as opposed to 19% the previous year.^[18]

As of April 2014, the maximum interest rate for deposits of 90 days or less is set at 10 percent, the maximum rate for deposits of more than 1 year is set at 22 percent, and for other maturities the cap is set at 14 to 18 percent.^[19][20]

In June 2016, bankers agreed to offer a maximum 15 percent interest on one-year deposits, down from the previous 18%. The rate for short-term deposits is set at 10 to 14 percent.^[21]

Banking assets and liabilities

Since 2002, the government has been barred from borrowing from the central bank directly (e.g. to finance budget deficits). Instead, it is allowed to borrow from the commercial banks who in turn, borrow from the central bank, and inflate their own balance sheets.^[24]

The total debt of 11 state-run banks to the

Debts of banks to the central bank stood at 836.1 trillion rials ($27.3 billion at the official exchange rate) by the end of the fiscal year that ended in March 2016. Private banks debts amounted to $4.06 billion. Five specialized bank, all state-run, accounted for $18.7 billion (or 68.5 percent) of the banking sector debts to the central bank by March 2016.[25]

Overdue loans

According to unofficial figures, overdue loans have reached IR175,000bn ($17.8bn, €13.6bn, £11bn), an increase of 75 per cent over three years (November 2008).^[26] Plan to inject about $13 billion to recapitalize the banking sector (2008).^[27] Ninety individuals have managed to secure collective facilities totaling $8 billion from Iranian banks, with previous $27 billion unpaid loans (2009).^{[citation needed]}

In October 2009,

Regarding corruption and cronyism in the banking sector, Tehran Prosecutor General Abbas Jafari Dowlatabadi said in 2016:^[28]

"Banking has been a safe haven in all such cases for corruption to incubate, with high-ranking management turning a blind eye on the corruption underway in inner organizational levels and or actively participating to gain their illicit interests [..] 11 banks had paid a sum of $2.5bn, with 1287 individuals filing for insolvency; the deadlock to be solved requires three fundamental approaches; the first remains with banks to adapt stricter roles and criteria for granting loans; the bank directors should be in the frontline of the fight for corruption; no run of-the-mill entrepreneur should receive inordinate amounts without putting in stake enough guarantees; cronyism should be abolished and unqualified evidence should not be lent credence as individual’s credentials as receiving loans."

Summary of the assets and liabilities of the banking system

In FY 2004 the balance sheet of the banking system showed that total assets and liabilities were US$165 billion, an increase of 226 percent since 1976. In that year, bank assets were divided as follows: private debt, 34 percent; government debt, 16 percent; and foreign assets (90 percent foreign exchange), 22 percent. Liquidity funds (money and quasi-money) accounted for more than 39 percent of total liabilities.^[11] The loan-to-deposit ratio was 100.8% in 2011.^[29] In 2014 non-performing loan ratio was reported to be around 18%.^[30] By 2017, the government is required to pay $12.5 billion to domestic banks to settle debts.^[31]

(1) Excludes commercial banks’ branches abroad. As of March 2010, Bank Saderat Iran, Bank Mellat, Tejarat Bank, and Refah Kargaran Bank have been classified as private banks.

As of September 2014,

Assets: The banks and financial institutions, total claims on the public sector (government and governmental institutions) amounted to 929 trillion IRR ($34.8 billion), and total claims on the non-public sector amounted to 5412 trillion IRR ($203 billion). The ratio of the claims on the public sector to the claims on the non-public sector was 17.2% in September 2014, 15.6% one year before, and 13.4% two years before. This trend suggests that the government is using more bank resources than it was previously, and that banks are getting more dependent on the government's solvency.^[34]

Liabilities: Deposits of the non-public sector amounted to 6245 trillion IRR ($234 billion) of which 78.4% is term deposits; this number was 74.5% one year before and 73% two years before. The trend is towards more term deposits and less sight deposits which could be a result of the higher cost of money, the downward trend in the

The ratios of the banks' legal reserves in the Central Bank in 2009 were as follows:^[16]

• Current deposit: 20 percent
• Interest-free-loan deposit: 10 percent
• Short-term deposit: 17 percent
• One-year deposit: 17 percent
• Two- and Three-year deposit: 15 percent
• Four-year deposit: 13 percent
• Five-year deposit: 11 percent
• Other deposits: 20 percent

According to Article 14 of the Monetary and Banking Law of Iran Archived 2010-10-30 at the Wayback Machine, the CBI is authorized to determine reserve requirement ratio within 10 to 30 percent depending on banks’ liabilities’ composition and field of activity.

Sectoral allocation of banking facilities

In 2008, Iranian banks extended 70 trillion

Since 2009, Iran has been developing an

Bond market

See also:

Iranian Rial

Part of a series on
Finance
Markets Assets Bond Commodity Derivatives Foreign exchange Money Over-the-counter Private equity Real estate Spot Stock Participants Investor institutional Retail Speculator Locations Financial centres Offshore financial centres Conduit and sink OFCs
Instruments Bond Cash Collateralised debt obligation Credit default swap Time deposit (certificate of deposit) Credit line Deposit Derivative Futures contract Indemnity Insurance Letter of credit Loan Mortgage Option (call exotic put) Performance bonds Repurchase agreement Stock Security Syndicated loan Synthetic CDO
Corporate General Accounting Audit Capital budgeting Credit rating agency Risk management Financial statements Transactions Leveraged buyout Mergers and acquisitions Structured finance Venture capital Taxation Base erosion and profit shifting (BEPS) Corporate tax haven Tax inversion Tax haven Transfer pricing
Personal Credit / Debt Employment contract Financial planning Retirement Student loan
Public Government spending Final consumption expenditure Operations Redistribution Transfer payment Government revenue Taxation Deficit spending Budget (balance) Debt Non-tax revenue Warrant of payment
Banking Central bank Deposit account Fractional-reserve Full-reserve Loan Money supply Lists of banks Bank regulation Banking license Basel Accords Bank for International Settlements Financial Stability Board Deposit insurance Separation of investment and retail banking
Regulation · Financial law International Financial Reporting Standards ISO 31000 Professional certification Fund governance
Economic history Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals
Business and Economics portal  Money portal
v t e

Participation papers

See also:

Musharakah

An important development for the Iranian

• South Pars natural gas. The bond has a maturity of three years and an interest rate of eight percent.^[42]
• New issues in July 2010 included $300 million of papers by the Tehran Municipality and $100 million of participation papers by the Ministry of Energy. The vast majority of these participation papers pay coupon rates of 2-3% above bank rates.^[43]
• Also in July 2010, Iran & Shargh Leasing Co. (the first non-bank entity to list a fixed income product on the OTC market) listed $8 million worth of participation papers.^[43]
• In August 2010, Iran sold about $500 million worth of bonds for the first development phase of the gas deposit. The three-year bonds, yield 16 percent.^[44]
• In November 2010, Iran will sell rial bonds worth $2.3 billion to finance the second development phase of its South Pars gas field.^[44] The bonds will be sold through Bank Saderat Iran, Bank Melli Iran and Pars Oil and Gas Co. Previously, POGC had sold $1.5 billion worth of papers for the same purpose. These papers pay a coupon of 16% per annum and have a tenure of 4 years.^[45]
• In November 2010
  Keshavarzi Bank listed $100 million of one-year tradable certificate of deposit (CD's) with an annual interest rate of 15%.^[45]
• Iran's national budget for 2012-13 has envisaged issuing €12.5 billion in bonds for financing domestic oil projects.^[46]

For up-to-date amounts and list of issuing agencies, see CBI's annual review(s) here. Archived 2014-08-08 at the Wayback Machine

Sukuk

Sukuk

1. Sukuk Ijara (
   leasing
   ): “The transfer of ownership for an agreed upon consideration”
2. Sukuk Musharaka (joint venture): “A form of partnership between the Islamic bank and its clients whereby each party contributes to the capital of the partnership in equal or varying degrees to establish a new project or share in an existing one, and whereby each of the parties becomes an owner of the capital on a permanent or declining basis and shall have his due share of profits” (see "Participation papers" section above.)
3. Sukuk Istisna’a (manufacturing finance): "A contract of sale of specified items to be manufactured or constructed, with an obligation on the part of the manufacturer or builder (contractor) to deliver them to the customer upon completion”
4. Sukuk Al-Murabaha (cost plus "
   profit"): “Sale of goods with an agreed upon profit mark up on the cost” (used as basis to justify credit card industry)^{[citation needed}
   ]

In 2010, The Banker listed 13 Iranian banks in the "top 1,000 banks in the world".^[51] In 2005 the Iranian banking system consisted of a central bank, 10 government-owned commercial and specialized banks, and four private commercial banks. In 2004 there were 13,952 commercial bank branches, 53 of which were foreign branches. Specialized banks had 2,663 branches.^[52] As of 2016, banking in Iran employs more than 200,000 staff in more than 23,000 branches of banks and credit institutions nationwide,^[28] of which 10,000 branches need to be shed according to bank experts.^[53]

Commercial government-owned banks

Specialized government-owned banks

Non-government-owned banks

Investment institutions

Credit agency

Iranian consumers have little debt (2015).^[65]

Iran does not have any special credit rating institute for customer's credibility rating but all Iranian banks are obligated to send statistics of

A number of Iranian banks have established branches abroad, several of which have been subject to program of consolidation. Thus, in recent years, Bank Saderat has acquired the Iran Overseas Investment Bank (from Bank Mellat), and branches of Bank Melli and the Bank of Industry and Mines in London to form Saderat International. In addition, the London branches of Bank Tejarat and Bank Mellat merged to form Persia Bank. As of 2016, Bank Melli Iran branches in Hamburg and Paris, Bank Sepah Plc in London and Bank Sepah branches in Rome and Frankfurt are also among Iranian state-owned financial entities licensed to operate in Europe.^[68]

Venture capital

According to the 2012 Global Entrepreneurship Monitor report, the rate of entrepreneurship in Iran among men fluctuated between 14 and 20% while the same rate for women (between the ages 18 to 64) fluctuated from 4 to 6% between 2008 and 2012 (& while their overall economic participation makes up only 13% of the entire economy).^[74] In 2012, Iran scored 67 among 177 countries according to the Global Entrepreneurship and Development Index.^[75] Some of this activity falls under the informal economy.

Iran's

Article 44 (fifth clause) of the Iranian Constitution Law had heretofore placed banking activities exclusively in the hands of government. In tandem with the Law on Usury Free Banking Operations, these two measures effectively blocked foreign banking operations from conducting business in mainland Iran. In 2009 the Constitution was to be amended to allow foreign banks to operate normally in mainland Iran.^{[citation needed]}

As of 2015, there is no limitation for the activities of foreign banks in Iranian free economic zones. They may also open branches and representative offices in mainland or hold 40% shares of an independent unit.^[85]

Foreign branches

The minimum capitalization for establishing a foreign bank branch in Iran is euro 5m.^{[citation needed]} A handful of foreign bank branches and representative offices extant in the country were allowed to undertake administrative and coordination activities but were not permitted to open customer accounts inside the territory of mainland Iran, receive deposits or extend normative facilities.^{[citation needed]}

According to the new rules, only the

In 2010, Tehran Times reported [instead?] that the banks filing the requests for working in Iran were from "states in the Persian Gulf and the Middle East regions as well as Asia".^[88]

Free trade zones

Minimum capitalization for a bank operating in Iran's FTZ is $100 million (2016).^[