Iranian banks have a limited scope of engagement with international financial institutions as lenders elsewhere will look to eliminate any exposure to the country once full US sanctions kick in.
The vast majority of international banks are vulnerable to sanctions because of the dominant role of the US and the dollar in the global economy and financial system, Fitch Solutions, a part of the Fitch Group said in a report on Wednesday. Even beyond the US sanctions, the Iranian banking sector’s “structural vulnerabilities” will restrict their engagement with international lenders, it added.
US sanctions on Iranian oil imports will come into force in early November and already the Iranian economy is under pressure. The economy is likely to contract this year and next on the back of sharp declines in oil exports and a further slump in already-low foreign investment inflows. Iranian banks, most of which are state-owned or state-linked, have struggled in the tough economic status quo.
The lenders have exceptionally high levels of bad debt, with non-performing loans estimated at 13 per cent of gross loans in 2017, said the report, citing Institute of International Finance data. However, Fitch estimates that the real ratio is likely even higher, as local reporting standards discourage the categorisation of loans as non-performing.
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Read more:
Iran to face recession as US sanctions bite
Iranian inflation set to rise sharply as US sanctions deadline approaches
Iran central bank authorised to intervene in foreign exchange market to defend rial
Iranians are under no illusions about a regime that has squandered its resources to spread terror
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“The capital adequacy is very low, standing at less than 6 per cent in that same year, compared with the Basel III-stipulated 8 per cent -- plus a 2.5 per cent cushion,” said the report.
Iranian banks' inability to engage with the international banking system will remain the case regardless of any eventual progress on much needed industry reforms.
Iran's parliament this month approved measures that are essential to implement international standards against money laundering and the funding of terrorism set by the Financial Action Task Force.
“While we view the Iranian parliament’s recent passing of legislation to bring domestic banking sector regulations in line with international standards as a positive step, we do not believe that this will substantially impact international banks’ perceptions of risks associated with operating in the Islamic republic as long as US sanctions remain in place,” Fitch analysts wrote in the report.
Iran’s banking sector vulnerabilities are primarily the result of challenging economic conditions in the years leading up to nuclear sanctions relief in 2016, as well as extensive government interference with lending practices and weak regulatory enforcement under the former Ahmadinejad administration.
Lenders increased the interest rate to attract deposits but many are now in trouble because of the weak economy.
Meanwhile, the US Treasury on Tuesday announced additional sanctions on the multi-billion dollar network for Iran’s powerful Basij paramilitary force, targeting 22 entities including corporations and some of the private banks that were not on the list previously.
Among those targeted are Bank Mellat, Mehr Eqtesad Iranian Investment, Mehr Eqtesad Bank, Parsian Bank, Sina Bank, Bahman Group, Tadbirgaran Atiyeh Investment Company, Negin Sahel Royal Company, Mehr Eqtesad Financial Group, and Technotar Engineering Company.
Also on the list are Iran Tractor Manufacturing Co, Esfahan's Mobarakeh Steel Co, and Iran’s Zinc Mines Development Company.
Company%20Profile
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The specs
Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
Transmission: 8-speed automatic
Price: From Dh192,500
On sale: Now
UAE currency: the story behind the money in your pockets
Auron Mein Kahan Dum Tha
Starring: Ajay Devgn, Tabu, Shantanu Maheshwari, Jimmy Shergill, Saiee Manjrekar
Director: Neeraj Pandey
Rating: 2.5/5
THE BIO: Mohammed Ashiq Ali
Proudest achievement: “I came to a new country and started this shop”
Favourite TV programme: the news
Favourite place in Dubai: Al Fahidi. “They started the metro in 2009 and I didn’t take it yet.”
Family: six sons in Dubai and a daughter in Faisalabad
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Company%20Profile
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The%20specs
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Company%20Profile
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UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
TRAP
Starring: Josh Hartnett, Saleka Shyamalan, Ariel Donaghue
Director: M Night Shyamalan
Rating: 3/5
Blackpink World Tour [Born Pink] In Cinemas
Starring: Rose, Jisoo, Jennie, Lisa
Directors: Min Geun, Oh Yoon-Dong
Rating: 3/5
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
COMPANY%20PROFILE
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Did you know?
Brunch has been around, is some form or another, for more than a century. The word was first mentioned in print in an 1895 edition of Hunter’s Weekly, after making the rounds among university students in Britain. The article, entitled Brunch: A Plea, argued the case for a later, more sociable weekend meal. “By eliminating the need to get up early on Sunday, brunch would make life brighter for Saturday night carousers. It would promote human happiness in other ways as well,” the piece read. “It is talk-compelling. It puts you in a good temper, it makes you satisfied with yourself and your fellow beings, it sweeps away the worries and cobwebs of the week.” More than 100 years later, author Guy Beringer’s words still ring true, especially in the UAE, where brunches are often used to mark special, sociable occasions.
What is the definition of an SME?
SMEs in the UAE are defined by the number of employees, annual turnover and sector. For example, a “small company” in the services industry has six to 50 employees with a turnover of more than Dh2 million up to Dh20m, while in the manufacturing industry the requirements are 10 to 100 employees with a turnover of more than Dh3m up to Dh50m, according to Dubai SME, an agency of the Department of Economic Development.
A “medium-sized company” can either have staff of 51 to 200 employees or 101 to 250 employees, and a turnover less than or equal to Dh200m or Dh250m, again depending on whether the business is in the trading, manufacturing or services sectors.
Profile
Company name: Marefa Digital
Based: Dubai Multi Commodities Centre
Number of employees: seven
Sector: e-learning
Funding stage: Pre-seed funding of Dh1.5m in 2017 and an initial seed round of Dh2m in 2019
Investors: Friends and family
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THE SIXTH SENSE
Starring: Bruce Willis, Toni Collette, Hayley Joel Osment
Director: M. Night Shyamalan
Rating: 5/5