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“…foreign banks’ investment in the country leads to rise in the sense of security of foreign investment and trust of international economy,” Seyed Mohsen Tabatabaei, the secretary of Iran’s Urban Economics Scientific Association (IUESA), said in an article sent to the Tasnim News Agency on Monday.
The full text of the article is as follows:
Post-Sanctions: Opportunities, Threats of Foreign Banks
Signing JCPOA, it is possible for foreign banks to enter into the country. It is necessary to assess exactly regarding the emerging issue, opportunities and possible threats in order to take advantage of the possible opportunity appropriately in line with economic boom.
To analyze appropriately, it is better to pay more attention to the existing condition of banking system. Iran’s banking system consists of governmental and private banks as well as financial and credit institution licensed by the Central Bank of Iran (CBI). Legal supervision is applied by regulatory bodies such as CBI and the state inspectorate organization. Money and Credit Council, as the highest national monetary authority, is responsible for monitoring the performance of money market, and determining the required reserve the interest rate of bank deposits. In fact, Iranian banking market is somehow managed and it is different from free-market banking in some countries.
However, supervisory recommendations are presented by international bodies to banks in order to improve the performance of banks and observe clients’ right. The Basel Committee, as the highest international institution of banking supervision, consists of senior representatives of central banks from some of industrial countries to present their suggestions in different fields to all the banks in the world to converge banks’ performance. These recommendations entitled as principles the Basel Committee including in the fields of banking operations, liquidity management, and identification of clients in conventional and electronic banking are observed by banks in different countries despite considerable costs for them. Therefore, strong, coherent, and efficient networks of banking operations are created.
One of the important opportunities in this matter is the role of foreign banks in international financial exchanges. Financial operations of international trade may become costly and less profitable if banking relations are stopped. For example, the cost of financial exchanges is 10 to 20 USD overseas while it is 10 percent of the total amount of exchange in Iran. As banking relations are stronger and equal banks to be existed in the countries of origin and destination, the costs of financial exchanges are reduced more. Presence of foreign banks, particularly banks with several branches in different countries, can be very helpful for decreasing the costs of necessary financial exchanges for international trade.
On the other hand, foreign banks’ investment in the country leads to rise in the sense of security of foreign investment and trust of international economy; moreover, it is very influential for entering foreign capital in different aspects. One of the other important advantages of presence of foreign banks is taking advantage of modern banking industry along with presenting technologies of modern banking services that would be very effective in enhancing banks’ competition in line with improving their services to clients. In addition, liquidity management and using technically valid and efficient strategies can be influential in reducing operational and credit risks and identification of customers, and changing the attitudes of domestic banks for the purpose of better banking management.
Failure to observe national and international standards in bank performance by Iranian banks is one of the problems and threats. Lack of accurate monitoring by supervisory bodies is very effective in this factor. One of the important reasons of failure to enter foreign banks into the Iranian banking market is uncertain environment leading to failure in entering immense amount of capital by foreign banks to the country. One of the important issues is the obligation of banks’ activities in the context of non-interest banking law. It is possible to emerge conflicts, especially in banking contracts, because of difference in banking principles in Iran and non-Muslim countries; therefore, it is necessary to adopt strategies and solutions in this regard by banking supervision authorities and central bank’s jurisprudential council.
Regarding the threats and opportunities, bureaucracy conditions are essential to be provided for entering foreign banks into Iranian banking market from one hand, and necessary mechanisms should be developed and designed for enhancing banks’ completion in order to reduce the problems and threats on the other hand.
Tasnim News Agency - economy