VZCZCXRO9254
RR RUEHBC RUEHKUK RUEHMOS
DE RUEHDE #2012/01 1011124
ZNY CCCCC ZZH
R 111124Z APR 06
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC 9690
INFO RUCNIRA/IRAN COLLECTIVE
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHDE/AMCONSUL DUBAI 2628

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 002012 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  4/8/2016 
TAGS: IR PGOV PINR ECON EFIN
SUBJECT: IRAN'S PRIVATE BANKS: STRICTLY REGULATED BUT PERCEIVED AS 
UNRELIABLE 
 
 
DUBAI 00002012  001.2 OF 002 
 
 
CLASSIFIED BY: Jason L. Davis, Consul General, Dubai, UAE. 
REASON: 1.4 (b), (d) 
 
 
 
1.(C) Summary: Private banks in Iran are highly regulated, 
especially when they want to open a new branch. While rates of 
return on deposits are high compared to government banks, 
consumer confidence in private banks in Iran is currently low. 
This distrust of private banks is primarily the result of a 
perceived lack of security of deposits and of the necessary 
expertise and qualifications on the part of bank employees. The 
government has lowered official lending rates. End summary. 
 
Private Banks in Post-Revolutionary Iran - A New Phenomenon 
--------------------------------------------- -------------- 
 
2.(C) Prior to the Islamic Revolution in 1979, there were 28 
private banks in Iran. The government nationalized these banks 
after the revolution, and private banks were not allowed again 
until 2000, when the Majles ratified the Third Five-Year 
Economic Development Plan. The plan authorized the establishment 
of private banking and credit institutions. The Majles 
restricted ownership of these banks to Iranian citizens who had 
to meet the following requirements: 1) experience and knowledge 
in the field of banking; 2) the ability to provide the necessary 
capital; and 3) lack of any criminal record for either financial 
or moral crimes. 
 
3.(C) Western and Iranian press reports differ on when the first 
private bank in post-revolutionary Iran was founded, but it was 
sometime in 2001. According to the Economist Intelligence Unit, 
the Central Bank issued the first license for a private bank to 
Modern Economic Bank in August 2001. Other private banks in Iran 
include Karfarin Bank, which received a license in December 
2001, and Saman Bank, which was licensed in August 2002. 
According to Iran Daily, there were four private banks in Iran 
by the end of 2004. These banks reportedly had 76 branches 
throughout the country and employed more than 1255 people. As of 
20 March 2004, these banks had accumulated more than 14 billion 
rials ($1.5 million) in deposits and offered over 10 billion 
rials ($1.1 million) in loans. 
 
 
Private Banks are Strictly Regulated 
------------------------------------ 
 
4.(C) On March 9, Conoff interviewed an employee of the 
regulatory office of the Central Bank of Iran for a visa. The 
employee in question deals with the approval process for private 
banks to open new branches. There are currently six private 
banks operating in Iran. According to her, these banks are 
carefully regulated. To open a new branch, private banks in Iran 
must first demonstrate that they have a sufficient number of 
employees who have the requisite qualifications, training, and 
expertise to man the new branch. She provided no further 
information on the documentation banks must provide in order to 
establish the fulfillment of these requirements or what concerns 
drive such close scrutiny by the Central Bank. 
 
Private Banks Offer High Rates of Return 
---------------------------------------- 
 
5.(C) Rates of return on savings and other interest bearing 
accounts at private banks are much higher than those available 
at government-owned banks. The Central Bank employee claimed, 
however, that the rates of return on deposits vary widely 
depending upon the private bank. Currently, some banks offer as 
much as 18 percent interest on deposits, which she noted is much 
better than the 2 percent available at most government banks. 
 
But Consumer Confidence Low 
--------------------------- 
 
6.(C) Consumer confidence in private banks is currently very 
low, according to the Central Bank official. She said deposits 
in private banks are not viewed as "safe" because it is believed 
that employees are often unqualified and do not have sufficient 
knowledge about banking matters, and that owners only seek 
short-term profit. Another contact, a board member of an Iranian 
investment company, told Conoff on 13 March that people are 
putting their money in Islamic Republic of Iran savings bonds as 
the "promised" return is 15.5 percent and relatively stable. He 
claimed that the return rate was so high largely because 
inflation in Iran was currently running at about 13 percent. 
According to an Iranian press report, Ebrahim Sheibani, Iran's 
Central Bank governor, stated in early March that although the 
Central Bank supports private banks, they continue to suffer 
from poor competition (perhaps a reference to the fact that 
there are only six private banks in Iran). 
 
DUBAI 00002012  002.2 OF 002 
 
 
 
Iranian Government Drops Lending Rates 
-------------------------------------- 
 
7.(C) According to Iranian press reports, Iran's Money and 
Credit Council decided on March 11 to drop government bank 
lending rates two percent from 16 to 14 percent. The government 
is planning to regulate the lending rates charged by private 
banks as well. This decision came after Ahmadinejad's 
administration joined the Majles in calling for a reduction in 
the rates and will be implemented in the new Iranian year (which 
began March 21). Iran's Central Bank Governor Ebrahim Sheibani, 
as quoted in an Iranian press report, noted on March 7 that 
lending rates in Iran have dropped from 24 to 16 percent in the 
past three years, stating that this decline is a huge success 
for Iran's banking system. An Iranian American source claimed in 
February that according to a contact of his who used to work in 
the intelligence ministry, Ahmadinejad was trying to do two 
things which -- if successful -- would allow him to stay in 
power: 1) drop the interest rate for borrowers to single digits; 
and 2) replace old guard officials throughout the government 
with new (presumably ones who support Ahmadinejad). 
 
Comment 
------- 
 
8.(C) It is interesting to note that Iranians continue to view 
private banks as unreliable, despite reported close scrutiny by 
the Central Bank. Furthermore, despite the recent drop, the 
interest rate on loans remains high -- a deterrent on investment 
in an already depressed economy. 
DAVIS