Banks of Iran: Six pieces of an Iranian jigsaw

Euromoney, June 2014

Iran has a heavily populated and complex banking sector, with several large state-owned banks which hold most of the country’s assets and deposits, and at least 17 private banks that tend to be smaller but more nimble and entrepreneurial. Euromoney profiles six institutions that represent different parts of the picture.

Bank Melli Iran

The first national Iranian bank, established by parliament in 1928 and still state-owned today. It served as the country’s central bank, printing and distributing rial, until 1960. A pioneer in international banking from Iran – it opened in Hamburg in 1965 and still has 16 branches and subsidiary banks internationally – it is today the biggest bank in Iran, employing over 43,000 people among 3,300 branches across the country.

While not at any international level of transparency and efficiency – the most recent annual report available on its English language web site is from 2008-9 – the bank is more than just a state behemoth, with a major share of the country’s private sector deposits alongside the government banking, project and trade finance work. However, it does appear to have been saddled with the worst of Iran’s troubling bad debt problem. In May Iran’s Valiollah Seif, quoted by the semi-official ISNA news agency, said that bad debt had reached 15.6% of total bank loans in Iran; Iran’s Hamshahri newspaper reported that in 2013, Melli held $12 billion, or 35%, of all those bad loans.

Given the absence of recent asset data, it’s hard to say just how big it is, but in 2011 it was believed to be one of the largest Islamic banks in the world with Shariah-compliant assets of $64.17 billion.

Parsian Bank

The biggest of the private banks, launched in September 2001 and listed in 2004. At the time of writing its market capitalization on the Tehran Stock Exchange was 59.95 trillion IRR (US$2.35 billion).

Parsian’s recent results illustrate the momentum in the Iranian banking sector in the last 12 months. Its net profit in 2013 was IRR 5.56 trillion (US$217.5 million), up 24% year on year; deposits (IRR452.8 trillion), assets (IRR495 trillion) and total income grew similarly. Tier one capital stands as 12.19%. All that’s missing from the picture is the bad loans, which Euromoney was unable to pin down: Iran Khodro, the largest automotive manufacturer in Iran, is a major shareholder, and Parsian has been financing both it and its supply chain at a time when the car industry is running at 40% capacity.

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Saman Bank

An example of a smaller, more nimble bank in Iran. Dramatically revamped in recent years, it now talks in a familiar western lingo of customer-centric models and sustainable growth, and operates through divisions for retail/SME, corporate banking and private banking.

A look at the bank’s recent accounts shows just what the industry has to reckon with. Its audited NPL ratio in 2012 stood at a dizzy 41.8%, and dropped only modestly to 39.3% in 2013. Its un-audited March 2014 number is 21.8%, which is a triumph in relative terms, but still an alarming number.

Nevertheless, over the same period its profits grew 65% to March 2013, and 14% the following year; return on equity now stands at 16.11%; and the bank’s market cap was up two thirds in the year to March 2014.

Despite an environment in which international trade has been shattered by sanctions, Saman has built a correspondent banking network and supported $6 billion of trade in 2013. It did this in part by specialising: it handled a quarter of all the pharmaceutical import trade finance in 2013, and 22% of food imports. It managed this through meeting its payments on time and gaining trust; it has correspondent banks in 35 countries now.

Saman also represents a trend to embrace technology, and launched a mobile banking portal called Samanak in 2012; it attracted 150,000 users in its first year.

Middle East Bank

Middle East Bank was launched in late 2012 by Parviz Aghili and a group of other businessmen and industrialists in the hoping of capturing the opportunities that should arise in a post-sanction Iran.

Aghili was interviewed in our February edition and said this of banking in Iran: “The following words have no place in their vocabulary: risk management, corporate governance, moral hazard, bankruptcy, asset-liability management, correct composition of a bank’s assets, differentiation between a bank and an investment company, and many more.” He wants to bring western standards of governance to Iranian banking; one analyst who recently went to Iran concluded that Middle East Bank was the only enterprise he saw whose business he could fully understand.

It is early days, but the ambitions are clearly big: the bank operates in wholesale, corporate, investment and virtual banking, and asset management. Interviewed earlier this year he said the bank had deposits of IR14 trillion and loans of IR11 trillion, far smaller than many peers, but the point is more that it exists at all: a new bank based on western models with a great deal of optimism about the country’s future.

Ayandeh Bank

Bankers are watching Ayandeh closely. Formed by a merger of three institutions in 2012, it is a full service operation with an admired management team, especially CEO Hosseini Hashemi; “much is expected of them,” one analyst notes.

Making sense of progress is tricky given the short term data available; strictly speaking, the bank can boast a 300% increase in market cap, 886% increase in pre-tax profit, 214% increase in total assets and 240% climb in deposits in the year to March 2013, but naturally those aren’t numbers that tell us a lot about the long term. Nevertheless, they’re clearly positive, and while far from being the biggest, Ayandeh is making progress.

A lot of the work of the last year has been structural: 302 weak branches were merged into higher performing ones, systems and processes have been revamped, new customer credit scoring systems are in place and NPLs have been hacked down. There has been progress on electronic banking, corporate and SME banking alongside previous strength in retail. The bank now claims to have the third most deposits among private banks in Iran.

Ayandeh claims to be the first true, successful merger in Iranian finance, and given the number of institutions still offering services, we may see many more.

Tejarat Bank

Formed out of a consolidation of 11 different banking enterprises under the Banks Nationalization Act in 1979, Bank Tejarat – which means trade – is today listed, and considered among private banks.

One of the biggest of the commercial houses, Tejarat’s pre-tax profit climbed over 80% in the year to December 21 to IRR5.96 trillion, while assets grew 36% to IRR754 trillion and deposits 25.7% to IRR571.75 trillion. Again, some healthy ratios – return on equity of 13.53%, for example – are matched by some shocking NPL numbers: 26.63% as of December 2013.

Like others, it has tried to grow despite sanctions, and has established divisions for insurance, capital provision and industrial and mineral holdings. Its investments grew 200% in the 21 months up to December 31 2013 as it has sought to expand. Also like others, it has developed a renewed risk management framework in order to avoid some of the bad loan problems that have plagued the sector in recent years.