The lifting of some sanctions, the release of some assets, and the purchase of a few big-ticket item deals from European Union states may have caused some to erroneously assume that Iran’s economic picture will now improve. While good news, such as reduced inflation, exists, overall economic improvement is likely to be modest and short-lived.  

This sobering, even gloomy, prediction is a realistic appraisal of the Islamic Republic’s major structural economic problems. These shortcomings are particularly stark in the financial sectors of Iran’s economy.  Iran is a bank-based, rather than a market-based, economy. This reality necessitates that the government, under the auspices of the Central Bank of Iran (CBI), be intimately involved in individual bank policies.

The Ministry of Economic Affairs and Finance also has a significant role in banking decision-making. Moreover, this regime involvement is only one dimension of its heavy role in finance and banking.

For instance, the CBI created the FAM-Bank in 2008, to address a major weakness of Iran’s banking sector. FAM-Bank’s major responsibility was to coerce banks across Iran to auction off their larger property assets. These assets were largely a result of failed loans, with banks seizing collateral, such as apartment complexes and buildings, associated with failure to thrive entrepreneurial initiatives. This led to a lack of liquidity in most of Iran’s 29 separate banking networks.

Hassan Yamani, the government-appointed manager of FAM-Bank, has overseen several bank auctions of property assets. However, some banks were not cooperating, as many of the properties were being sold at auctions at a loss. Yamani then complained to CBI and the Money and Credit Council. Consequently, Iran’s Majles passed a law in 2015 mandating that all banks must sell of 33 percent of their property holdings.

Until banks acquire greater liquidity, lending to middle class business entrepreneurs will continue at a slow rate and act as a drag on the economy.

A second major difficulty in Iran’s banking sector is outside party involvement. The CBI made certain that Iran’s banks had SWIFT* in place almost immediately following “Implementation Day” of the Joint Comprehensive Plan of Action (JCPOA). Though some sanctions have been lifted, U.S. financial sanctions remain in place.  This has resulted in many major financial lending canadian-pharm365 refusing to engage Iranian banks in monetary transactions.

President Rouhani has quickly appealed to western financial centers to de-couple themselves from American policy. He dispatched his Chief of Staff Mohammad Nahavandian to London to prod UK government officials to release Iran’s financial centers from these restrictions. Subsequently, Prime Minister Cameron sent a note to Barclays Bank Manager Joseph Staley informing him that “he was not in line with UK policy.” Staley retorted, “We offer our banking and financial services through our U.S. operations, and therefore we are required to restrict our business activity with Iran.”

*SWIFT- Society for Worldwide Interbank Financial Telecommunications is a system which permits banks to send and receive financial data in a secure manner.