Iran's CB Eases Foreign Banks’ Presence in FTZs

EghtesadOnline: The Central Bank of Iran has agreed to significantly ease capital conditions based on which foreign banks will be able to establish a branch in the country's free trade zones, the secretary-general of the High Council of FTZs said.

News ID: ۷۴۵۴۱۸

03 June 2018

At present, the minimum capital required by foreign financial institutions to establish a branch in an Iranian FTZ stands at €150 million.

However, according to Morteza Bank, "CBI Governor [Valiollah Seif] has assured us that if foreign banks are eager to establish a branch in an FTZ, the aforementioned figure is negotiable".

The official also told ISNA that Iran's FTZs are seriously following up on attracting branches of foreign banks, according to FinanciaL Tribune.

Iran is currently suffering from a lack of foreign financial institutions operating on its soil. This is while US President Donald Trump on May 8 withdrew the United States from the Joint Comprehensive Plan of Action, the formal name of Iran's nuclear deal with world powers, meaning that hard-hitting financial sanctions are set to return, putting much more pressure on the country's banking system.

In his remarks on Saturday, the official stressed that in case foreign financial institutions are willing to enter FTZs, they will not have to worry about capital deficiencies since the central bank has vowed to extend full assistance.

"Something like this will help FTZs very much and open the way for the establishment of foreign banks and their branches," he said.

Bank said "we must see which bank will now be willing to establish or open a branch in FTZs".

As CBI's Secretary-General Seyyed Mahmoud Ahmadi said in Feb. 2017, offshore banks wishing to enter Iran's FTZs must meet the goal of FTZs in attracting foreign investments and present a guaranteed front in terms of stability and health of their institution.

Ahmadi had also said at the time that FTZs must not become conduits for capital flight.

This is especially important at present as Iran is still dealing with the aftermath of the government's decision to unify the country's dual foreign exchange rates on April 10 to prevent the further depreciation of the rial and prevent capital flight.

The original volume of minimum capital required to establish a bank or a branch of a foreign financial institution in Iran's FTZs was €25 million. The minimum requirement was raised to €150 million to ensure such banks have a sufficient capital cushion. However, the sudden and hefty rise was criticized by some who argued that it will prevent prospective investors.

Akbar Torkan, the previous head of the High Council of FTZs, was a staunch critic of the minimum capital requirement.

"The fact that the minimum capital required to establish a bank in free trade zones has increased from €25 million to €150 million means that the process of establishing foreign banks in these zones will become harder and slower, which will change the equation altogether," he had said at the time.

Iran has seven active FTZs, while two more have been approved but have yet to start activities. A scheme is also under review by the parliament, which envisions a significant expansion of FTZs with the aim of attracting more foreign presence and capital.

The head of the High Council of FTZs had announced in January 2018 that a draft version of regulations for the operation of international financial institutions in FTZs has been devised and is pending the Cabinet's approval. No other news has been published on that front since.

On Saturday, a member of Majlis Economic Commission also evaluated the active elimination of the €150 million minimum requirement as a positive development.

"If a foreign bank is established in one of the FTZs, it can spur growth by attracting foreign exchange deposits. It must not be forgotten that a considerable amount of foreign banknotes are held in homes and we must prevent their stacking," Mohammad Hassan-Nejad told ICANA, the official news outlet of the parliament.

Hassan-Nejad announced that "a Ukrainian bank is slated to establish a branch in the Aras FTZ", without elaborating further.