Are Australian banks missing the opportunity in Iran?
It might not be on their list of strategic markets, however the Big Four could be making a mistake by neglecting Iran’s potential.
The Italian designer stores springing up in Tehran’s wealthy Zafaraniyeh neighbourhood mark the start of a new era for Iran. Following the lifting of sanctions, the country is starting to open its doors to the West and preparing to do business.
However to ensure a free flow of trade, one of the first priorities for Iran must be to re-establish its links with Western banks and modernise its financial system.
“Australian banks could get in on the ground floor as Iran rebuilds a banking sector that it needs to re-integrate into global trade,” Dr Intezari said. “However, it seems that a lack of knowledge about the real Iran is preventing Australian business in general from realising the enormous business potential.”
Another opportunity for the banks is that the lifting of sanctions will release billions of dollars of Iran’s frozen money, giving Iranians access to the international financial market.
One of the oldest civilisations in the world, Iran has a history dating back to 3200 BC. Its 81 million people are highly literate and well educated, and its universities produce world-class research in Science, Technology, Engineering, and Medicine (STEM). Because English is taught as a second language, communication with the West is relatively easy. In a country with a total area larger than Germany, UK, France, Poland, and Ireland combined, Iran has a GDP of US$394 billion, but with a purchasing power parity ranked 18th in the world.
This relatively large economy has been temporarily impeded as it recovers from the economic policies of former president, Ahmadinezhad. As a result, unemployment is high and growth is low. However, while the government is actively dealing with this short-term situation, according to Intezari and McKenna, what is more important is building the longer term base for the economy to grow.
“The Iranian banking system needs two vital elements: the facility to provide secure banking internally and globally as well as the proper prudential and regulatory framework,” said Associate Professor McKenna, who made a fact-finding mission to Iran last year.
More recently, Dr Intezari’s analysis has identified seven major areas which Iran needs to address to stabilise its banking system if it is to be attractive to foreign investors and traders:
Developing an integrated and comprehensive framework to implement operational processes based on international financial standards.
Prioritising international strategic integration and alliance to meet the challenges associated with opening branches in other countries.
Equipping the banking system with cutting-edge technology to provide fast, low-cost, reliable and quality services; to enable mobile banking, to use cloud computing and big data; to enhance security, for example for credit checks; and for assessing both systematic risks (economic and socio-political risks) and non-systematic risks (such as operational and transaction risks).
Familiarising employees with modern banking and financial systems, to ensure a strategic approach to designing and implementing processes, and effective project management in implementing and maintaining new banking systems.
• Policy making
Clarifying the government’s role in policy making in the banking sector as privatisation occurs. This must align with banking development strategies in an international market.
Ensuring there are experts within the sector who are familiar with economic and financial research.
• Organisational level
Improving employees’ productivity and implementing effective recruitment and promotion mechanisms.
Australian banks and the regulatory framework within which they operate are world-class.
“The stability of the Australian banking system during the Global Financial Crisis provides international testimony to its sound foundations,” Associate Professor McKenna said.
“It should be a major selling point not just in banks setting up within Iran but in providing practical advice about how to avoid the pitfalls of a poorly regulated financial sector. Iran needs credibility. By adopting Australian banking practices, Iran will gain that credibility.”
Iran has the largest Islamic banking system, making up about 40% of the global Islamic banking assets, with three of the four leading Islamic banks based in Iran. Iran’s banking assets are $482 billion, according to Bloomberg. However, only 20% of the banks are privately owned. These private banks perform better than their state-owned counterparts. However, as they are relatively inexperienced, they seem to lack confidence in the international banking, according to Dr Intezari.
“Not only are there profits to be made in Iranian banking, but also Australia has an opportunity to establish stronger relations with this increasingly important and stable world political and economic player. It would be such a shame if outdated stereotypes and lack of knowledge held Australian banks and businesses back from this great business and cultural opportunity,” Intezari and McKenna conclude.