After the sanctions that have restricted Iran's international banking activities over the last four years were lifted, the country suddenly regained access to USD113 billion worth of assets that had been frozen in countries around the world. Since the beginning of 2016, Iran has been making a gradual return to the global banking business, again able to use the SWIFT worldwide transaction network.
IRAN’s return to the Belgian banking system that handles cash transfers and letters of credit among 9,700 financial institutions in 209 countries is vital to the success of the country’s trade, particularly to crude oil exports. During recent months, Iran’s banks have been preparing the necessary infrastructure to offer international transactions and cooperate with their foreign counterparts. The eyes of Iran’s six state-run banks and 23 private banks, with assets exceeding USD600 billion, are now gazing beyond Iran’s borders, seeking to open offices in Europe, Asia, and the MENA region.
Many Iranian banks have designed roadmaps to open up to the world after regaining their financial freedom. One such institution is Bank Pasargad, the second-largest finance company, with billions of dollars of blocked assets worldwide, which is looking to partner with banks in Turkey, Germany, Spain, and China. Moreover, the privately owned Saman Bank is planning to open representative offices in Italy, the UK, and Germany, while Parsian Bank is considering opening branches in India.
At the same time, foreign banks are expected to link up with their Iranian equals via SWIFT and expand their involvement in the country’s financial system. The banks considering establishing subsidiaries in Iran will need to find a partnership with a local entity unless they open shop in a free trade zone. Several financial institutions from European countries, including Germany, France, the UK, and Italy, have been in talks to open branches after the lifting of sanctions. Austria’s Raiffeisen Bank International (RBI) was the first foreign lender to announce it would set up a branch in Iran, followed by other European banks that are tentatively re-engaging with the Middle East’s second-largest economy. Belgium’s KBC Bank and Germany’s DZ Bank both confirmed that they have started handling transactions on behalf of European clients doing business in Iran, and Austria’s Erste Bank is preparing to follow suit.
There has, however, been a growing frustration among some officials in Iran and Europe about the slow pace at which Tehran is reconnecting to the global financial system. The Central Bank of Iran (CBI), which took the necessary steps to restore SWIFT access, warned of the few transactions made by Iranian banks during the first months of the reconnection, pointing out the worry of foreign banks about the risks of dealing with them. The largest European banks remain on the sidelines, concerned about being caught up in ongoing US sanctions. Banks have paid more than USD15 billion in fines for breaching sanctions in various countries over the past five years, the most costly being the USD8.9 billion penalty France’s BNP Paribas paid in 2014.
Washington’s sanctions prevent banks and insurers from trading with Iran and also prohibit any trades with Iran in dollars from being processed via the US financial system. This is a significant complication, given the dollar’s role as the world’s main business currency. Nonetheless, Iranian exporters are demanding to trade in euros to reduce dependency on the dollar. Valliolah Seif, Governor of CBI, flew to Washington in mid-April, the highest-ranking Iranian official to visit the US in decades, and spoke about the side effects of the nuclear deal on the reconnection of Iran to the international economic system.
Credit cards still do not work in the Islamic Republic, and the country’s ATMs remain separated from the rest of the world. That is unlikely to change soon, as many of the world’s major financial services companies operate in the US. As a matter of fact, Iran is still calling for full access to the international banking system, and the EU said it would intercede in order to remove obstacles preventing banks trying from getting into Iran after the Joint Comprehensive Plan of Action (JCPOA) is implemented. As trade delegations from Europe and Asia have been filling hotel rooms in Tehran, the limits to the country’s banking activities and global links are likely to become history soon enough.
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