Due to capital market insufficient development, Iran’s banking system is currently playing a significant role in equipping and allocating resources. Iran’s banking is divided into four groups including state-owned, specialized, private and privatized banks which are owned by public or private sector. Also financial and credit institutions (Gharzolhasane fund) are operating, along with some foreign banks in Iran. Currently, 42 banks and non-bank credit institutions are operating include 3 government commercial, 5 specialized and state-owned, 20 non-government commercial, 2 private Gharzolhasaneh, 5 private non-bank credit institutions. There was a proportion of 10% Non Performing Loans (NPL), which was challenged by the banking industry in the year ended March 2017.

Recent trends

  • Government debts to the banking system grew by 19% to over 2,048,000 bn IRR, compared to the year ended March 2017
  • Bank deposits growth of 22.6%
  • Bank facilities increase by 23%
  • Decrease of NPL by 10%
  • Contract of 14 Iranian banks with Austrian Oberbank for1 bn EUR
  • Finance contract of 12 Iranian banks with the Korea Exim bank (KEXIM) for 8 bn EUR

Banks and Non-Bank credit Institutions

According to the latest Central Bank statistics ,42 banks and NBCI are operating include 23,124 branches, with each branch for 3,450 individuals. At present, there are 4 foreign banks such az Standard Chartered, EIHBANK, Islamic Cooperation Bank for Investment and Future Bank.

Active Banks and Credit Institutions by October 2017

Banking assets and Debts

From April to August 2017, liquidity grew by 9% and reached 13,662,600 bn IRR compared to the year ended March 2017 and liquidity growth was more than 24.3% compared to the same period of the previous year. The share of money from the total liquidity was 1,657,800 bn IRR and the quasi-money was 12,004,800 bn IRR, from April to August 2017. The government’s debt to the banking system including securities reached 2,047,800 bn IRR from April to August 2017, which grew by 10.2% since the year ended in March 2017.

Iran banking assets and Debts (000 bn IRR)

Bank deposits

The bank deposits grew by more than 22% and reached over 13,934,000 bn IRR from April to August 2017 compared to the same period last year. Over the recent years, the Central Bank reserves have been decreasing from 11.52% to 10.47% from April to August 2017. According to Monetary and Banking Law, Article 14, the bank reserve ratio will not be less than 10% and more than 30% and the Central Bank may determine according to the type of bank activity.

According to the Central Bank’s assessment, December 2015, the operation of commercial banks in accordance with the rules and approvals of the Monetary and Credit Council, are subject to discount rate from 0% to 3% in bank reserves. The Central Bank aims to increase discipline in the money market by reducing the cost of financing. In determining new ratios, the central bank evaluates the performance of banks based on indicators such as cooperation with Central Bank supervisors, disclosure and transparency standards, providing information required by Central Bank credit and regulatory departments and in particular observing the interest rates approved by the Money and Credit Council (MCC).

The central bank’s assessment is ongoing and will be repeated quarterly and banks will enjoy a further reduction in bank reserves deposit, given improving their performance. Also, in case of a bank decrease in the future valuations, the bank reserves ratio will increase.

Bank deposits (000 bn IRR)

The non-public sector deposits account for more than 95% of total bank deposits from April to August 2017, the ratio has risen in recent years, that is, it grew from 85.9% in the year ended March 2013 to more than 95%, by the end of August 2017. The long-term deposits have the largest share of all non-public sectors.

Non-public sector deposits (000 bn IRR)

More than 84% of non-public sector deposits include long-term deposits and 9.9% sight deposits and 4.6% Gharzolhasaneh, from April to August 2017,

Non-public sector deposits combination from April- August 2017

The share of government and specialized commercial banks in non-public sector deposits has been decreasing over recent years and private credit institutions have attracted more nonpublic deposits. The share of non-public and non-bank credit institutions was about 65%, in the year ended March 2013, which reached more than 70% by the end of August 2017.

Contribution of all non-public deposits (000 bn IRR)

Contribution of non-public deposits from April- August 2017

After falling the inflation in recent years and the relative improvement in economy and contraction policies made by the government, the interest rates on bank deposits were decreased in recent years, So that the short-term deposit rate was between 7% and 12%, the year ended March 2014 was determined at a maximum of 10%, since the year ended March 2016. Also, the interest rate of on-account long-term deposits has been set at a maximum of 15%, in the year ended March 2018. Also, the opening of an investment deposit account more than one year has been prohibited since year ended March 2015.

Deposit interest rates on account (%)

Bank facilities

The total banking system facilities have been grown and even doubled by August 2017 compared to 2013. The loan-to-deposit ratio (LTD) after a reserve requirement has slowed down from 99.7% in the year ended March 2013 to 83.9 in August 2017, following the contraction policies. The loan-to-deposit ratio (LTD) after reserve requirement grew by 0.8% in August 2016 compared to the previous year.

Bank facilities (000 bn IRR)

The maximum amount of offered facilities is related to civil partnerships by 40.2%, installment sales by 25.5%, by the end of August of 2017.

Bank facilities combination from April – August 2017 (%)

The largest amount of facilities is allocated to non- public commercial banks and non-bank credit institutions, accounting for more than 62.5% of the total facilities. Banks and non-bank credit institutions own more than 70.3% of all non-public deposits.

Banks share of facilities (%)

Banks’ lending rates for transaction contracts (%)

The ratio of NPL to the total nonperforming loan was about 10%, in the year ended March 2017 which declined 2% than year ended March 2016. This ratio indicates the repayment volume to the banks and with reducing the ratio, a promising decrease on arrears will occur on loan payment. The ratio of non-performing loan ratio in Rials decreased from 9.5%, in the year ended March 2017 down to 2.1% in the year ended March 2016 and this ratio was 13% in currency facilities, in the year ended March 2017 almost 0.8% higher than the last year.

NPL ratio to total loans (%)

Non-performing loans (NPL)

NPL to total loans ratio in selected regions-2015 (%)

Modern payment & E-Banking systems

With the increase of the penetration rate of electronic payment services, these deals have accelerated more than GDP over the past years. As a result, the transactions ratio to GDP increased from 73% to more than 120% since 2015 to 2017. Electronic transactions have played a significant role in providing liquidity to the various sectors in recent years. Given the trends in the ratio of electronic transactions, banknote and coin to liquidity shows that, the value of Shaparak transactions to liquidity ranged from 6.6% to about 10.4% between the year ended March 2014 and the year ended March 2017.

8 bn transactions were carried out account for 8,160,000 bn IRR, from April to September 2017. The real value of transactions, increased by about 13.5% from April to September 2017, than the same period last year. Although part of the real value expansion of electronic transactions is associated with an increase in the penetration rate of EFTPOS, the removal of facilitating access to electronic payment instruments effect over time also shows that individuals electronic payment per capita as household consumption indicator, while having growing a trend from April to September 2017, has grown by 11% compared with same period last year. A change that can be interpreted as an increase in the demand and economic prosperity.

Performance of SHAPARAK (Electronic payment card network)

Share of transaction gateway (%)



  • Lifting of sanctions led to release banking transactions, both in resource allocation to banks and rising banking fees.
  • The recent inflation, especially in the housing sector, have led to growth of banks asset value and consequently in lending capacity increase by increasing capital


  • Banking system inadequate knowledge in new monetary and financial instruments.
  • High ratio of non-performing loan claims in the banking system
  • The banking system has large arrears to the Central Bank.
  • Low capital adequacy ratio of banks
  • The variety of financial and bank instrument is less than the world standard
  • Deposit rate reduction: The current economic conditions and the reduction of the inflation rate have led to a reduction in bank interest rates. Obviously, this will lead to the resources withdrawal from the banks.
  • Unproductive asset accumulation (poisoned): Recession over the years and failure to repay the facilities have resulted in the accumulation of unproductive assets in the financial statements.
  • The impact of unauthorized financial institutions on the monetary market: the influence of some nonpublic organizations and financial institutions on macroeconomic policies have had an impact on monetary market.


  • High liquidity as an opportunity to attract resources
  • Lowering the cost of claims by increasing the economic growth rate
  • Increasing the net and actual deposits with the gradual reduction of the inflation rate
  • Attracting Foreign and domestic investors and customers
  • The government’s obligation to solve banks problems:
  • Due to the impact of the JCPOA on recession, government solution to bank problems is promising.
  • Joining foreign banks in post-JCPOA era: the global recession and the opportunity to benefit post-JCPOA, provide foreign banks to cooperate with Iranian banks.


  • The variety of active banks and the expansion of guild banking
  • Government intervention on this market.

Sanctions & post-sanctions

The banking system is one of the sectors that have suffered from serious sanctions and imminent losses in recent years. The closure of the Swift, limitation of monetary transfers, rise in the cost of the banking and economic sector, are among the problems. The reducing of sanctions has currently become an international challenge. The negative effects of limited velocity of money and increased costs were neutralized by JCPOA implementation. During post-JCPOA, the banking system can use various financing instruments and international credits and bonds. International relations development, using international electronic instruments such as SWIFT, import and export documentary credits and buyer and seller credit agreements are among the other positive effects of post-JCPOA. In the field of technology and banking information, banks can have better international connections through approaches and practices that are related to comprehensive banking.

One of the serious effects of the sanctions was the increase in government debt to the banking system and direct government involvement in this sector. Particularly, governmental banks had to challenge with imposed facilities increased by the government. Due to the reduced risk of investment and the prosperity of economic activities, a decrease in the banking system claims and the proportion of non-claims in the banking system will be significantly reduction and meeting global standards are expected. Due to the economic arena, a part of the FDI can be implemented in the banking sector. The entry of foreign banks into the Iranian economy can lead to the expansion of the competitive environment monetary market and new instruments and technologies in this sector. Inter-Bank contracts have been signed between Iran and several other countries in recent months.

Contract with Austrian OberBank; An agreement for 1bn ERU was signed between 14 Iranian banks and Austrian Bank Oberbank. As the largest banking system agreement after the JCPOA, a financing contract of 8 bn EUR was signed with the South Korea Exim bank (KEXIM).

Post- JCPOA impact on banks international relations Banking Brokerage Relationships:

All limits to nonUS banks to cut off brokerage with Iranian banks have been removed and now, no non-US bank has provided Iranian brokers with services.
This means that Iranian banks can establish their own brokerage relationships with foreign banks and access to the US financial system is not deprived.

Credit and Negotiable draft:

Despite the limited use of LC and foreign remittance during the sanctions, these mechanisms were gradually flourished after JCPOA.

Payment Messaging:

Due to sanctions, providing Payment Messaging services to Iranian banks was hampered, namely, Iranian banks could not use systems such as SWIFT and Reuters for Payment Messaging, hereby, the Iranian banks were forced to exchange their Payment Messaging using traditional methods such as telex and fax suffering a lot of costs and risks and in some cases delayed.
After JCPOA, the SWIFT was re-established and Payment Messaging service was provided.

Laws & Regulations

Recognition of the term “banking operations” shall rest with the Money and Credit Council. The establishment of a bank shall require prior approval of its Article of Association by the Money and Credit Council and with Iran central bank’s permit.

Any bank with 40% capital belonging foreign natural or legal entities is required to be registered as foreign bank. For the purpose of this Article, any legal entity which 100% of its capital owned by individual entities of Iranian nationality shall be regarded as foreign.

Iranian banks may not transfer more than 40% of their shares to foreign nationals or to legal entities not having 75% of their capitals owned by Iranian nationals. Under no circumstances, shares of Iranian banks could not be transferred to foreign sgovernments.

The ratio and rules governing the allocation of the bank’s reserve should be determined by currency and credit council.

Appropriation to the Statutory Reserves shall not be less than 15% or exceed 20% of the annual net profits. Appropriations to the Statutory Reserve shall be optional once the accumulated total of such Reserve equals the capital of the bank.
According to the third chapter of operating instructions monitor the formation, operation, monitoring and liquidation of the offshore banking units in Free Zones of the Islamic Republic of Iran, the minimum required capital and capital grants for offshore banking unit in the region are as follows:

A. Bank: At least 100 mn EUR or the equivalent in other currency acceptable to the Bank.
B. Branches of foreign credit institutions: At least 5 mn EUR or the equivalent in other currencies accepted by Iran central bank.

Minimum capital required to establish a bank

Banking industry in Capital Market

Based on official information contained on Tehran Stock Exchange, banking group has a market share of 8.4% in stock exchange with a market value of 8,633 mn USD. P/E ratio is 10.48 in October 2017.


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