Iran says set to accept foreign banks
By Mehrdad Balali
TEHRAN, Sept 11 (Reuters) - Iran on Monday invited applications from
foreign banks and other financial institutions to operate in its free trade
zones - the first such foreign involvement in Iran since the 1979 Islamic
Bahram Zarrin-Qalam, Central Bank director on banking affairs, said
administrative regulations had been approved, paving the way for foreign
banks and other financial institutions to operate in the special zones.
``We need a banking system in our free trade zones which can operate
without any restrictions and provide efficient services. It has to be in
tune with economic activities in the zones,'' he told Reuters in an interview.
``We want a financial system which is dynamically competitive, one which
can compete with free trade zones in neighbouring countries,'' he said,
in a reference primarily to nearby Dubai, in the United Arab Emirates.
Iran nationalised all private banks after the revolution and banned
foreign financial activities throughout the country.
After the 1980-1988 war against Iraq and facing economic downturn, it
set up free trade zones on its Gulf islands of Kish and Qeshm and the southeastern
port of Chahbahar to attract investment and technology and boost non-oil
More recently, the country has allowed private banking in the mainland
for greater efficiency.
FREE ZONES STILL LAG
But business has not picked up as expected in these areas. Despite tax
breaks and cheap labour, the free zones have failed to draw considerable
After a long internal struggle, and despite constitutional limits, Iran
last year passed a law allowing foreign banks and insurance firms to operate
out of its free trade zones and to have up to a 100 percent stake in any
Iran said last month it had started accepting applications from foreign
and local private insurance firms to set up in its free trade zones for
the first time since the revolution.
The developments are designed to encourage greater foreign investment
in the zones and to pull them out of stagnation.
Zarrin-Qalam said any foreign entity interested in starting a bank in
Iranian free trade zones would have to come up with initial capital of
at least $10 million.
The figure for non-banking credit institutions is $5 million and for
branches of existing foreign banks $3 million.
They start by submitting a business plan to the local administration
in one of the zones and leaving at least half of the required amount as
collateral with the Central Bank, the official said.
The Central Bank will review the permits after running background checks.
Zarrin-Qalam said off-shore financial institutions were required to
do business only in hard currency. But they would be exempt from most banking
regulation, including limits on interest rates.
The new regulations would also liberalise currency exchange transactions
at the new banks. Cash could be freely transferred in an out of free trade
zones but not into the mainland.