Bank Sepah Says Could Face Credit Squeeze Post-Merger

EghtesadOnline: The state-owned Bank Sepah, with which five military banks merged recently, may face difficulty maintaining its balance sheet, CEO of the bank said.

News ID: ۷۸۵۸۳۶

25 January 2021

Discussing the "complex" merger process with the Majlis Economic Commission, Mohammad Kazem Choqazardi solicited help from the legislature, the government and the central bank if the major lender encounters a credit crunch in the post-merger period.

"Merging five banks with Sepah has impacted our balance sheet. We hope to be able to compensate potential liquidity shortages," he was quoted as saying by Bank Sepah website.

The merger was finalized last month after an arduous process that lasted two and a half years. It involved Sepah, the oldest in Iran and one of the three still under government ownership, four banks and one credit institution owned by the Iranian armed forces, namely Ansar Bank, Bank Hekamat Iranian, Mehr Eqtesad Bank, Ghavamin Bank and Kosar Credit Institution.

Choqazardi said the funding squeeze after mergers is not abnormal, noting that "the bank has been one of the best in the interbank market and gave money largely to other banks in the past six years."

Hadi Ghavami, the deputy economy minister for legal affairs, said "Sepah is among the few exceptions that has not over-borrowed from the CBI. The merger has impacted the balance sheet of the bank.”

The merger was dubbed by the head of the parliamentary commission Mohammadreza Pourebrahimi as the "second biggest" in the world. He reassured the Sepah boss that the parliament would support the bank in fixing its balance sheet.

"The process of valuation and pricing [assets of] merged banks, issues related to staff, poor balance sheets and their impact on the financial statements of Bank Sepah and ways of addressing the bank's credit crunch are the main subjects for the commissions," the MP was quoted as saying.

Biggest Lender

The megamerger transformed Sepah into the biggest bank in Iran elevating it in terms of deposits, branches and payroll overtaking Bank Melli, another top state-owned lender.

Sepah now holds an estimated 4,750 trillion rials ($20.5 billion) in deposits, which is 50% higher than Bank Melli. The amount is 18% of the total financial resources in Iran’s banking system, according to Choqazardi

"Prior to the merger the bank's financial strength was 1,600 trillion rials ($7 billion)".

Sepah staff has now increased from 14,000 to nearly 44,000, he told the lawmakers. Regarding branches, the five along with Bank Sepah had 3,800 branches, the senior banker said, stressing that plans are underway to downsize.

It has been reported that the merger proposal was first made in 2014 but was launched in 2019 as part of CBI policy to streamline the dysfunctional banking industry, promote transparency and improve efficiency.

The merged banks were saddled with weak balance sheets due to unhealthy competition with peers and violating CBI rules governing lending and interest rates.

Overall the merger is billed as a crucial move in the past half century following decisions by the Money and Credit Council-- the main monetary decision-maker -- and the Supreme Council of Economic Coordination -- an ad-hoc decision-making body comprising heads of the three branches of government (executive, legislature and judiciary).