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Iran International
Jun. 2000, No. 9
Text: In line with the objectives pursued by the Third Economic Development Plan, many new measures have been taken by officials for creating a competitive environment in economic sectors. The following report presents recent banking developments in Iran, conditions for establishing private banks and the recent changes in Iran's foreign obligations:
An Agreed Rate: A major development in the Iranian banking system was
a recent decision by the Central Bank of Iran (CBI), based on which Iranian banks have
been permitted to buy and sell foreign exchange at the "agreed rate".
According to the CBI statement, the forex purchased by branches of Iranian banks in foreign countries will be payable in rials in Iran and banks are required to provide special arrangements for payment of such funds without delay. However, the statement emphasized, the foreign exchange bought at the "export rate" based on previous CBI permits and statements are not subject to the agreed rate.
The currencies that could be bought at the agreed rate are German mark, British pound, U.S. dollar, euro, Japanese yen, Swiss frank and French frank. Other currencies can also be bought by Iranian banks in case the bank should use that specific currency.
The forex which is transferred through the international banking system- mainly by foreign exchange draft, traveler's check and foreign exchange account deposit can be bough without any limitations. Moreover, foreign currency notes up to $50,000 or its equivalent in other currencies can be purchased by Iranian banks.
The CBI statement also allowed the banks to receive transfer fees from customers as much as 0.5% of the purchase price to cover insurance and other costs. According to CBI, all likely profits or losses belong to the banks, while they are permitted to buy or sell forex at the unofficial market rate.
The exchange rate is announced daily by Melli and Saderat Banks. Other banks use this rate as the criteria based on which they state their own rate, using their analysis from the market. All banks must adjust their agreed rate according to changes in the exchange rate in the market. Selling forex is allowed in the following cases:
The CBI International Office will purchase the surplus forex of the banks at the market rate, in case there is no demand for it.
Setting up Private Banks: Iranian Parliament (Majlis) has required the CBI to prepare the grounds for the activity of non-governmental banking and credit institutions and organizations set up by Iranian entities. The CBI has also been required to supervise those organizations, while preventing the formation and activity of illegal institutions. Majlis has also decided that all policies regarding monetary, credit and forex issues should be made by the government, which also has monopoly over minting coins, keeping forex deposits, supervising the banks' performance and issuing permits for banking activities.
The regulations related to the type of banking activities such as observing the determined financial ratios, proper financial structures and contracts would be based on non-interest banking system.
All legal and real entities that want to set up private banks have to fulfill the following requirements: 1. Having experience and knowledge in the field of banking; 2. Ability to provide necessary capital; 3. Lack of any criminal record, including both financial and moral crimes.
The Third Five-Year Economic Development Plan (March 2000- March 2005)has authorized creation of private banks and CBI can issue licenses for private banks.
The policy of the CBI is to supervise setting up of private banks and fostering competition in the financial sector, according to the CBI governor Mohsen Nourbakhsh.
There is no restriction for the establishment of private credit institutions, while there is a high demand for private banks system since the country's banking system cannot accommodate the public's financial needs and request at this time. Licenses for private banks will continue to be issued in the future. However, ownership of these banks is restricted to Iranian citizens.
Foreign Obligation; Economic Figures: In the last Iranian year (ended March 21), the rates of gross national product (GNP) and fixed domestic capital formation stood at 2.4% and 8.2% respectively.
The country's foreign trade balance was positive last year. Iran's exports and imports were 9% and 14% higher respectively in the period compared to the corresponding figures for the previous year.
Last year, the government's oil revenues exceeded $16 billion and worth of non-oil exports (including engineering services) stood at $3.5 billion, registering a 8.5% rise compared to the figures for the year before. The value of imports stood at nearly $12.26 billion in the period. This is while the country's total foreign debts last year declined by 25% and stood at $10.531 billion as a result of the positive trade balance. Iran's total foreign obligations reduced to $20 billion compared to the projected $25 billion in the same period.
There was no budget deficit last year and the hard currency revenues equaled the expenditures standing at $19.77 billion. Meanwhile, last year's inflation rate was 20.1%.
Oil revenues in this year's budget are based on an average of $15.7 per barrel, but after the subsequent revisions, the figure has been raised to $18.8. if the last budgetary figures go according to the target, the liquidity growth will slow down this year and inflation rate will not exceed 15%. Meanwhile, with the rise in Iran's deposits and the reduction of its financial obligations, the balance of forex accounts has been improved by 30% based on the statistics at the end of September 1999.
The statistics, released by the Bank for International Settlements (BIS), show that the balance of Iran's accounts (the difference between deposits and obligations) with foreign banks indicates a $1.559 billion debt in September, while this figure for the preceding year was $2.217 billion.
Statistics also show that Iran had a total deposit of $6.908 billion with foreign banks in the same month, which is the highest level in the past two years. The level of the deposit increased by $220 million, showing a 3% growth as compared to the figures in March 1999, and comparing to the figure in March 1998, it shows a 2.5% growth which equals $155 million.
Based on the same statistics, the level of Iran's deposits in the first, second and third seasons of 1999 were respectively 6.357, 6.683 and 6.908 million dollars . In comparison with the figure at the end of 1998, which was $6.286 million, during the first nine months of 1999 these deposits rose by $622 million.
BIS figures also indicate that in September 1999, Iran's financial obligations stood at $8.867 billion which reduced by 4% or $326 million comparing to three months earlier, and the same figures decreased by 6%, or $503, million comparing to a year ago.
BIS also reported that the improvement in Iranian forex accounts, takes place at a time that the deposits belonging to other Middle Eastern and North African countries have been deteriorating.