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Iran Commercial Banking Report Q4 2008
Business Monitor International, Jan 2009, Pages: 53
Iran Commercial Banking Report provides independent forecasts and competitive intelligence on Iran's commercial banking industry.
This report is being written at a time when the global financial crisis, which arose as a result of the evaporation of inter-bank liquidity, appeared to be moving towards a resolution: the governments of the UK, the US and most of the larger countries in the eurozone have all announced plans to make funds available – in one form or another – to their respective commercial banking sectors. As yet, it is too early to identify the impact of the crisis on particular emerging markets. However, in the regular section that discusses the changes we are making to the report, we include a lengthy piece that attempts to identify the key issues. In essence, in the emerging markets (and, indeed, the developed countries) of the Asia-Pacific region, commercial banks appear to be well placed to deal with the crisis. The same is broadly true of commercial banks in the various countries of the Middle East and North Africa. In Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that of Brazil, while Nigeria faces some of the same challenges as those that confront Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming.
It has not been practicable for us to collate the latest figures for bank assets and bank lending this quarter. The global financial situation has been changing so rapidly that most numbers would have become out of date. Nevertheless, we expect that, in the coming months, it will become obvious that credit growth is slowing dramatically in most of the countries whose commercial banking sectors are profiled in reports, and we will amend the figures – and indeed our forecasts – accordingly.
Nevertheless, we believe that the figures compiled last quarter provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, environment. We have therefore left them, and our commentary on the key issues, essentially unchanged.
The figures on the tables above provide a snapshot of the banking sector in Iran and the changes that have taken place within it over the last year. To put the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The median loan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets and GDP mean little. However, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was 63.9% in India.
From Q308, we have included a section that examines the risks associated with each country’s banking sector in a new way. We have essentially sought to ask this question: to what extent will the banking sector likely need to source funding from banks in the rest of the world over the course of 2008? Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macroeconomic developments and recent movements in financial markets.
Booming oil prices – and, in Iran at least, highly inflationary monetary policies – have led to a surge in bank lending in much of the Middle East and North Africa. It is not clear that all of this lending has been prudent. Nevertheless, the massive current-account surpluses being achieved by many of the countries in the region indicate that – quite unlike South East and East Asia in 1997-1998, for instance – the currencies are undervalued. There is no reason why the boom should stop anytime soon. The Middle East and North Africa should, collectively, continue to be a significant supplier of capital to the rest of the world. However, in part because of the relative underdevelopment of financial services and banking in most countries, relatively little of this money should come directly through the local banks.
As in previous reports, we include a SWOT analysis for Iran. A general theme of this report is that the long-term problems facing Iran’s banking sector – few of which are of the banks’ own making – are such that it compares unfavourably with its peers in the rest of the world. A country which, for political reasons, is isolated commercially from global markets, where the Central Bank is not independent and where the government for a long time has emphasised high inflation as a way of reducing the value of its substantial borrowings is not a country where strong banks thrive. Of the 58 other countries whose banking sectors are surveyed by BMI, Venezuela is the one where the structural challenges are most similar to those faced in Iran. As we explain in this report, the government of Mahmoud Ahmadinejad is unlikely to end the rampant inflation anytime soon.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns. It does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns. This reflects assessments of overall country risk, together with the regulatory and competitive environment.
CBBER for Iran
Iran’s overall CBBER of 46.7 is towards the lower end of the countries in the Middle East and Africa region that are surveyed by BMI. This score is underpinned by a solid if not spectacular score of 54.4 on the heavily weighted banking market structure of the limits to potential returns element. This is reflective of the sheer scale and entrenched position of the Iranian banking system within the Iranian economy, which is comparatively large for the region, rather than a high level of development.
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