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Iran Commercial Banking Report Q1 2009
Business Monitor International, March 2009, Pages: 56
BMI's Iran Commercial Banking Report provides independent forecasts and competitive intelligence on Iran's commercial banking industry.
The coming year will be a tough one for Iran. Economic growth will slow, mirroring the slowdown in all the major economies of the world, and we now see real GDP growth in 2009-2010 (note: Iranian years begin in March) falling to just 2.4%, down from 4.7% in 2008-2009. While we are not expecting Iran to fall into recession, our projected growth rate would be the most lacklustre in a decade. Thereafter, growth will begin to pick up again, in line with a slow recovery in the global economy, and over the course of the forecast period (2009-2010 to 2013-2014) we expect growth to average 3.6%. This is substantially below an estimated 5.6% average growth rate over the previous five years, when economic expansion was driven in large part by the oil boom. We also see gross fixed capital formation growth slowing to 2.5% in 2009-2010, down from over 6% the previous two years. Domestic liquidity will be impacted by fewer petrodollars entering the banking system, leading to a slowdown in lending to businesses.
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 – has moved into a new phase. Stock market participants appear – reasonably – to have taken the view that the policy responses taken by governments, central banks and multi-lateral institutions will be sufficient to prevent a total collapse of the global financial system. Instead, stock market participants are focusing on the impact of a (near)-global recession on the earnings of non-financial companies. The number and size of stand-by facilities agreed by the International Monetary Fund (IMF) since early mid-October supports our view that, of the emerging markets whose commercial banking sectors are surveyed by BMI, the countries of Central and Eastern Europe (CEE) are those whose economies are most at risk of suffering adverse affects as a result of the global financial crisis. This is partly because the macro-economic imbalances are relatively severe and partly because the Central and Eastern European countries are more directly affected by the brutal recession that is unfolding in wealthier member states of the European Union.
As yet, it has not been possible to collate hard numbers for most of the countries whose commercial banking sectors are surveyed by BMI that clearly quantify the impact of the global financial crisis on the banks. As we explain in the section that discusses changes that we are making to the report, we again include a lengthy essay which attempts to identify the key issues. In essence, in the emerging markets (and, indeed, the developed countries) of the Asia-Pacific, 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. In contrast, 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.
From Q209, we will include data that pertain to late 2008 and will extend forecasts out to 2013. We will also incorporate much greater discussion of the various protagonists in each country’s commercial banking sector and a number of new features. We believe that the figures we compiled in mid-2008 provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, environment. We have therefore left them essentially unchanged. The figures on the tables above provide a snapshot of the banking sector in Iran prior to the onset of the global financial crisis. To place 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.
As in previous reports, we include a SWOT analysis for Iran. We suggest that the key issue remains, as always, oil. Iran is the world’s second-largest oil producer and its economy is quite dependent on petrodollars. Movements in the price of oil impact the economy profoundly. Within the banking sector the key factors are its relatively small size and lack of independence. 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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