Iranian Banks Shutter Branches to Cut Costs

EghtesadOnline: Banks owned by the government sold 280 trillion rials ($1.2 billion) in assets since January 2018, the Ministry of Economy said in a report.

News ID: ۷۵۰۸۹۵

06 September 2020

Lenders sold nonfinancial assets worth 130 trillion rials ($565 million) in the last fiscal year (March 2019-20) to cut costs, according the report posted on the ministry’s news portal shada.ir.

State-owned lenders sold 135 trillion rials ($586m) in assets from the beginning of President Hassan Rouhani's first term in 2013 up until January 2018.

Lenders are under mounting pressure to end their controversial non-banking activities by getting rid of expensive real estate and surplus holdings. Officials estimate nonfinancial assets of banks to be worth 1,000 trillion rials ($4.3b).

The assets have piled up mainly due to impaired loans, bad debts, settlement of government debts to banks, closure of branches and failed investments.

The report includes data on the number of bank branches in the country, according to which banks shuttered 903 branches in the previous Iranian fiscal year. Only in the first four months of the current fiscal year that started in March 140 bank branches were shut.

Constant Criticism

The unusually high number of bank branches in Iran has come under mounting criticism by economic experts and government officials alike, giving rise to persistent calls for cutting branches owned or leased, especially in upscale districts in most big cities.

Economy Ministry officials announced earlier that about half of the bank branches (10,000) are no more needed.  "The number of bank branches need not exceed 12,000 based on indicators such as net domestic product, population and demographics."

Based on a Word Bank report in 2016, there were 12.5 bank branches in the world for every 100, 000 adults. The number for Iran in that year was 31.3.

Iran’s average is also more than double the MENA average that is 14.7 bank branches for every 100,000 adults.

According to the global lender, to reach the global average, Iran needs to reduce the number of branches to 8,868, which means getting rid of 11,730 offices.

The ministry also pointed to government plans to sell stakes in banks and insurance firms, saying that offering banks and insurance company shares via exchange-traded funds was a successful move to cut costs.

ETF is a basket of securities that trade on an exchange, just like a stock. ETFs can contain all types of investments including stocks, commodities, or bonds.

The government offered shares in three banks and two insurance companies via an ETF in May. The bank-based ETF holds 17% of government stake in Tejarat Bank, 17% in Bank Mellat, 18.32% in Bank Saderat Iran, 17.34% in Alborz Insurance Company and 11.44% in Amin Reinsurance Company.

The government earned 56 trillion rials ($243m) by selling ETF units bought by approximately 3.5 million buyers.