Foreign Banks Welcome

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For the first time since the 1979 Islamic Revolution, Iran is set to allow foreign banks to establish branches in the country and engage in normal banking operations.

According to Presstv, Article 44 of the Constitution had heretofore placed banking activities exclusively in the hands of government. In tandem with the Law on Usury Free Banking Operations, these two measures effectively blocked foreign banking operations from conducting business in the mainland.

A handful of foreign bank branches and representative offices extant in the country were allowed to undertake administrative and coordinative activities but were not permitted to open customer accounts, receive deposits or extend normative facilities. Foreign banks, under special conditions, were allowed to function in the free zones.

With the long-awaited privatization law having already come into force in the summer of 2008, allowing the normal functioning of foreign banks in Iran is viewed as a major economy boosting initiative by the Central Bank of Iran (CBI)Central Bank of Iran (CBI).

The rules for regulating the activity of foreign banks are set forth in four parts and 13 articles in the decree dated March 18, 2009 by the Council of Ministers and titled The Executive Bylaw of the Manner of Establishment and Operations of Foreign Bank Branches in Iran.

The minimum capital for establishing a foreign bank branch in Iran is 5 million euros.

Under the new circumstances, four US banks, including CitibankCitibank and Goldman SachsGoldman Sachs, have applied for opening a branch in Iran. The banks made a formal request to the CBI to establish a branch.

If the CBI approves their request, these four banks will set up a temporary branch in an Iranian free trade zone. And if they can work according to the Iranian banking law, they will also be allowed to open branches in Tehran and other cities.

The two Wall Street giants--Goldman SachsGoldman Sachs and CitibankCitibank--have been hard hit by the economic recession in the US. Goldman SachsGoldman Sachs reported first-quarter earnings of $1.66 billion on Monday. CitibankCitibank is the consumer banking arm of Citigroup, which has received $45 billion in bailout funds from the US government.

© Iran Daily 2009