Experts agree that the Iranian private sector will be the critical element in driving the country’s economy out of its current stagflation. At the same time, private businesses are in dire need of modern and functioning banking and financial services. While still small compared to giant public banks, Iran’s private banks could be the missing link in the country’s business services; however, they need to look for new ways to take advantage of their more dynamic nature. 

Iran started liberalizing its state-dominated banking system in the late 1990s, initially by introducing private “savings and loans” institutions and later allowing the establishment of private banks in 2000. A number of genuinely private banks have been established in the past decade. In addition, shares of formerly state-owned banks such as Tejarat, Mellat and Saderat have been offered on the Tehran Stock Exchange. However, in their management and operation, all the privatized banks are still under government control — a fact that is clearly documented in the appointment of managing directors of these banks by the government. 

All public and private banks as well as savings and loans institutions are subject to supervision and regulation by the Central Bank of Iran (CBI) under the Monetary and Banking Act. CBI supervision is conducted through regular reporting requirements as well as by on-site inspection. In recent years, especially following a number of major embezzlement and corruption cases, the CBI has increased its supervisory capacity and revised existing regulations in areas such as large exposures and connected lending. One of the principal threats to the banking and financial system has always been the weak supervision of the large state-owned banks, reflecting the lack of appropriate infrastructure to collect data. As such, smaller private banks are subject to greater scrutiny by the CBI as their data infrastructure is modern and can follow the reporting requirements.

A recent report by the regulatory body assessing the performance of the country’s private banks indicates that the 17 existing private banks in Iran (Eqtessad Novin, Ansar, Iran Zamin, Ayandeh, Parsian, Pasargad, Hekmat Iranian, Saman, Day, Sarmaye, Sina, Shahr, Karafarin, Tourism, Ghavamein, Mehr Eqtesad and To’see) have a total of 2,780 branches in the country (fewer branches than those of one of the giant state-owned banks). It should be noted that a number of these banks are positioned in the semi-governmental sphere of foundations and military organizations. In fact, Sina is owned by the Mostazafan Foundation, Shahr is owned by the Municipality of Tehran, Hekmat Iranian by the army, Day by the Martyrs Foundation, Ansar by the Cooperative of the Revolutionary Guard, Ghavamein by the Law Enforcement Organization and Mehr Eqtesad by the Basij Mostazafan Organization. This means that the real private sector banks only number 10, some of which are also controlled by other conglomerates and organizations with ties to the government (such as Eqtessad Novin, owned by the Behshahr Group and Parsian, part owned by the Iran Khodro Group). Nonetheless, it is these banks that are generating new competition for banking services, and they could help fill the gaps in the banking sector.