Iranian Banks Streamlining Operations Before Merger

EghtesadOnline: An unprecedented bank merger is underway in Iran since last March in which five banks and credit institutions affiliated to military organizations are being merged with the state-owned Bank Sepah.

News ID: ۷۴۹۱۱۹

07 December 2019

On the latest developments on the merger, Farhad Hanifi, the Central Bank of Iran deputy for supervisory affairs, said each merging bank has agreed to cut branches by 10%.

In a talk with IBENA, Hanifi added that the reduction in branches follows an initial agreement between the merging institutions and the body in charge of overseeing the merger.

“It is expected that [merged] banks take the necessary action before the end of the merging process” and streamline their operations, Financial Tribune reported.

Earlier the CBI predicted the merger to be complete by the time the current fiscal year is out in March 2020.

The merging banks have 2,800 branches that will reportedly be added to the existing 1,800 branches of Bank Sepah.

All said, the number of branches is eye-catching in that the total after the merger will be 1,000 over and above Bank Melli Iran branches -- the country’s largest lender.

Taking stock of the large number of Bank Sepah branches after the merger ends, Mohammad Kazem Choqazardi, CEO of Bank Sepah, said his bank will have to cut branches to be able to optimize and perform efficiently.

By the time the merging process is over, the number of Bank Sepah branches will rise to about 4,600, Choqazardi said.

Most of the merging banks have a branch in very small regions and will operate under the Bank Sepah logo.

“This would not be economically viable,” the senior banker said.

The Central Bank of Iran in March officially announced on its website that five banks and credit institutions, namely Ansar Bank, Bank Hekmat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution will merge with Sepah.

The measure is a follow-up to earlier decisions by the Money and Credit Council – the main monetary decision-maker -- and the Supreme Council of Economic Coordination -- a body comprising heads of three branches of government created at the behest of the Leader Ayatollah Seyyed Ali Khamenei -- to “help address economic issues.”

Share Transfer

As for the transfer of shares, the merging entities have so far transferred between 60-95% of their stake to Bank Sepah through the Securities and Exchange Organization.

The price of each share will be set after financial experts make their views known, Hanifi said.

According to the CBI official, election for the board of directors of merged entities was held recently and the banks are now governed by the new board.

“The new members were chosen in coordination with Bank Sepah and as per procedures that govern elections of board members of banks,” he added.

As for the measures currently being taken, he said 90% of merged banks property, including real estate, are assessed and priced, and the precise value(s) await audit reports.

Recent reports said 24 million customers have 2,150 trillion ($16.7 billion based on current foreign exchange parity rates) in deposits with the five merging banks. Likewise, the lenders have given 1,300 trillion rials ($10 billion) in loans.

Status of Employees

Regarding the future of workers of the merging institutions, he said guidelines are being prepared that will “decide on the fate of the employees.”

The number of Bank Sepah staff is expected to rise from the present 15,000 to 43,000 after the merger.

On the likelihood of layoffs after branch closures, Choqazardi had said in September that closure of unproductive branches does not mean layoff.

In the notice announcing the merger in March, the CBI assured employees working for the merged entities that the new situation would not cause disruption in their career and that “their rights are fully guaranteed.”

The regulator said studies have been conducted to ensure full protection of rights of clients, depositors, shareholders, employees and beneficiaries.

The merger is in line with broader CBI plans to reform the struggling banking sector and promote transparency and openness in the bloated industry.