Merging of Iran's military-related banks to create more risks, problems - analyst

Finance Materials 4 March 2019 17:00 (UTC +04:00)

Tehran, Iran, March 4


Iranian President Hassan Rouhani has approved a decree to merge the military-related banks in the country.

The five entities to be merged into Bank Sepah are: Bank Ansar, Bank Qavamin, Bank Hekmat Iranian, Bank Mehr Eqtesad and Kowsar Credit Institute.

Many Iranian banks are under pressure because of years of poor management and economic difficulties, caused by decades of international sanctions and the re-imposition of U.S. sanctions last year.

The advocates of merging believe one of the current challenges of the banking system is banks' low capital and the problem would be reduced by merging banks, and help save costs as well, reduce service fees, number of branches and the managers of banks.

Those in Iran who oppose the merger, think that merging banks into one bank would cause more problems than before, as Sepah Bank would be dealing with more losses than before.

"The merging method is not correct, since these banks have problems and the situation would get worse," Iranian economist Vahid Shaghaghi told Trend in an interview.

"Usually during the merger, bad institutes merge into good banks to have proper function but considering these banks have high unbalanced resources and in addition to high debts, lack of liquidity and blocked properties, this plan would create unpleasant situation with the unbalanced resources," he explained.

Shaghaghi believes that Sepah Bank is problematic by itself.

"Sepah Bank has high unbalance resources and the problems would defiantly increase with addition of other banks such as Qavamin bank, and the situation will become worse than before," he said.

He insisted that there wasn't a correct planning of this situation.

"In the current chaotic situation the merger would create more risks," said the expert.