Sanc­tions deal would un­lock Ira­nian banks’ growth po­ten­tial, says Moody’s

Financial Mirror (Cyprus) - - FRONT PAGE -

The lift­ing of nu­clear-re­lated trade and fi­nan­cial sanc­tions on Iran, should it ma­te­ri­alise, would be credit pos­i­tive for the coun­try’s banks, Moody’s In­vestors Ser­vice said in a re­port on Wed­nes­day.

Ac­cord­ing to the rat­ing agency, in­creased trade and in­vest­ment could boost growth in Iran’s bank­ing sec­tor and sup­port as­set qual­ity of do­mes­tic banks, although such im­prove­ments would de­pend on the strength­en­ing of banks’ cap­i­tal lev­els and the im­ple­men­ta­tion of struc­tural re­forms.

“We see sig­nif­i­cant up­side po­ten­tial for Ira­nian banks from in­creased eco­nomic ac­tiv­ity if sanc­tions are lifted. This could in­clude new re­gional busi­ness op­por­tu­ni­ties re­lat­ing to trade fi­nance, letters of credit and new in­vest­ments and in­fra­struc­ture projects,” said Con­stanti­nos Kypreos, se­nior credit of­fi­cer at Moody’s.

Moody’s re­port also high­lights that if and when sanc­tions are lifted, more than half of the of­fi­cial re­serves which are cur­rently frozen - es­ti­mated by the In­sti­tute of In­ter­na­tional Fi­nance to to­tal $92 bln - may be used, for ex­am­ple, to re­cap­i­talise gov­ern­ment-owned banks or be in­vested in build­ing the coun­try’s in­fra­struc­ture.

“Re­cap­i­tal­i­sa­tion is much needed to un­lock the growth po­ten­tial of the Ira­nian bank­ing sec­tor,” said Kypreos. “The repa­tri­a­tion of frozen as­sets, and po­ten­tial in­ter­est from for­eign in­vestors and fi­nan­cial in­sti­tu­tions, would also al­low do­mes­tic banks to strengthen their sol­vency lev­els,” he added.

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Banks domi­ciled in coun­tries with close ties and trade links to Iran, such as the UAE and Le­banon, but po­ten­tially also Western, Chi­nese and In­dian banks, would likely be at­tracted to Iran’s diver­si­fied econ­omy and sig­nif­i­cant trade flows, ac­cord­ing to Moody’s.

“We an­tic­i­pate in­creased longer-term busi­ness op­por­tu­ni­ties for Dubai banks if the Ira­nian econ­omy opens up, par­tic­u­larly given the pri­vate sec­tor na­ture of the Dubai econ­omy and its strengths as a lo­gis­tics hub,” noted Khalid Howladar - se­nior credit of­fi­cer.

“In ad­di­tion, a rise in in­ward in­vest­ments from Ira­nian na­tion­als could mod­er­ate the im­pact of the soft­en­ing real es­tate mar­ket in Dubai,” he added.

How­ever, phys­i­cal

ex­pan­sion

into

Iran would pose greater risks.

The rat­ing agency notes that the still frag­ile op­er­at­ing and geopo­lit­i­cal en­vi­ron­ment would ex­pose for­eign banks to the as­set qual­ity is­sues in­her­ent to emerg­ing economies un­der­go­ing fast trans­for­ma­tion, and would re­quire pru­dent risk con­trol and over­sight.

Moody’s also notes that the en­tire Ira­nian bank­ing sys­tem is Shari’ah com­pli­ant and is cur­rently the largest amongst coun­tries prac­tic­ing Is­lamic fi­nance.

“Given the sheer size of the bank­ing sys­tem and the coun­try’s fi­nanc­ing needs, we ex­pect a ma­jor boost to sukuk vol­umes,” said Howladar. “How­ever, Shari’ah har­mon­i­sa­tion across ju­ris­dic­tions would likely re­main dif­fi­cult.”

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