Banking and insurance in Iran

Following the Iranian Revolution, Iran's banking system was transformed to be run on an Islamic interest-free basis. As of 2010 there were seven large government-run commercial banks. As of March 2014, Iran's banking assets made up over a third of the estimated total of Islamic banking assets globally. They totaled 17,344 trillion rials, or US$523 billion at the free market exchange rate, using central bank data, according to Reuters.
Since 2001 the Iranian Government has moved toward liberalising the banking sector, although progress has been slow. In 1994 Bank Markazi authorised the creation of private credit institutions, and in 1998 authorised foreign banks to offer full banking services in Iran's free-trade zones. The central bank sought to follow this with the recapitalisation and partial privatisation of the existing commercial banks, seeking to liberalise the sector and encourage the development of a more competitive and efficient industry. State-owned banks are considered by many to be poorly functioning as financial intermediaries. Extensive regulations are in place, including controls on rates of return and subsidized credit for specific regions. The banking sector in Iran is viewed as a potential hedge against the removal of subsidies, as the plan is not expected to have any direct impact on banks.
As of 2008, demand for investment banking services was limited. The economy remains dominated by the state; mergers and acquisitions are infrequent and tend to take place between state players, which do not require advice of an international standard. The capital markets are at an early stage of development. "Privatization" through the bourse has tended to involve the sale of state-owned enterprises to other state actors. There is also a lack of sizeable independent private companies that could benefit from using the bourse to raise capital. As of 2009, there was no sizeable corporate bond market. In 2024 the banking sector underwent a cyberattack, the "worst attack" in Iranian history by hackers, forcing the Iranian government to pay ransom to release the data of Iranian customers.

History

In 1960 the Central Bank of Iran was established as a banker for the government, with responsibility for issuing currency. In 1972 legislation further defined the CBI's functions as a central bank responsible for national monetary policy. In the 1960s and 1970s, the expansion of economic activity fueled by oil revenues increased Iran's financial resources, and subsequently the demand for banking services increased exponentially. By 1977, some 36 banks with 8,275 branches were in operation. Their topline revenue has always been trade finance and letters of credit.
After the Revolution, the government nationalized domestic private banks and insurance companies. Bank law was changed under new interest-free Islamic banking regulations. The post-Revolution reduction in economic activity and financial resources required banks to consolidate. By 1982, this consolidation, in conformity with the Banking Nationalization Act, had reduced the number of banks to nine and the number of branches to 6,581. Subsequently, the system expanded gradually.
The government began to privatize the banking sector in 2001 when licenses were issued to two new privately owned banks.
In 2014, Iranian authorities arrested 12 people for embezzlement of more than $4.5 billion from the Kerman branch of Tejarat Bank from 2009 until their arrest in 2013.
In 2024 the banking sector underwent the "worst attack" in Iranian history by hackers according to Politico, forcing the Iranian government to pay ransom to release the data of Iranian customers. The Iranian government hid the attack from citizens, fearing a bank run and the collapse of an unstable Iranian financial sector.

Types of financial institutions

As of 2011, about 80% of the country's wealth was deposited with state banks and the remaining 20% with private banks. Iran's financial institutions are:

Banks
Finance & Credit Institutions
"Gharzolhasaneh" Funds
Islamic banking

, Iranian banks use "provisional" interest-based transactions but retain the accounting standards of conventional banking. In 2009, Iranian banks accounted for about 40 percent of total assets of the world's top 100 Islamic banks. Three of the leading four Islamic banks are based there; Bank Melli Iran, with assets of $45.5 billion came first, followed by Saudi Arabia's Al-Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran with $39.3 billion. “Iranian banks are still the predominant Islamic banking players, holding seven out of the top 10 ranks and 12 of the 100,” the Asian Banker research group reported. According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds were predicted to rise by 24 percent to $25 billion in 2010.

Commercial banks

s are authorized to accept checking and savings deposits and term investment deposits, and they are allowed to use promotional methods to attract deposits. Term investment deposits may be used by banks in a variety of activities such as joint ventures, direct investments, and limited trade partnerships. However, commercial banks are prohibited from investing in the production of luxury and nonessential consumer goods. Commercial banks also may engage in authorized banking operations with state-owned institutions, government-affiliated organizations, and public corporations. The funds received as commissions, fees, and returns constitute bank income and cannot be divided among depositors. According to the Central Bank of Iran, the financial sector has about $260 billion of liquidity, or 65% of the GDP of Iran's economy.

Derivatives market

As of 2009, the Iranian oil bourse was a spot market for petrochemical products mainly, with plans to introduce sharia-compliant futures contracts for crude oil and petrochemicals in the future. Trading takes place through licensed private brokers registered with the Securities and Exchange Organization of Iran. With help of Bahrain-based International Islamic Financial Market and New York-based International Swaps and Derivatives Association, global standards for Islamic derivatives were set in 2010. The “” provides a structure under which institutions can trade derivatives such as profit-rate and currency swaps. While the standards of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions are widely followed around the world, they are not enforced in Iran.

Rates

As of 2010, the interest rate charged between banks is set by the government of Iran. In practice, because the banking system of the Islamic Republic is run on an Islamic interest-free basis, there are no "interest rates", only "provisional profit" lending rates called Mobadala.

Official "provisional" lending rate (aka "Mobadala")

12.0%, 11.5%, 12.0%. Free market rate is 24-25 percent.

Deposit rates

As of 2010, private banks have acquired 11 percent of the whole money market in Iran.

Term of deposits	Five-year deposits	Four-year deposits	Three-year deposits	Two-year deposits	One-year deposits	Special short-term deposits	Short-term deposits
Provisional profit rate for 1390 *	15	14.5	14	13	12.5	12.5	6-10
Provisional profit rate for 1387 *	15-18.5	15-18.5	15-18	15-17.75	17-17.5	15-17.25	10-16.5

The range given covers the different interest rates offered by different banks. In 2010, for the first time in annual policies, the interest payable on bank deposits is similar for both state-owned and privately owned banks. For example, overnight deposits’ interest has been reduced from 12.5% last year to 9% this year. Similarly, 5-year term deposits will now earn 17.5% interest, as opposed to 19% the previous year.

As of April 2014, the maximum interest rate for deposits of 90 days or less is set at 10 percent, the maximum rate for deposits of more than 1 year is set at 22 percent, and for other maturities the cap is set at 14 to 18 percent.
In June 2016, bankers agreed to offer a maximum 15 percent interest on one-year deposits, down from the previous 18%. The rate for short-term deposits is set at 10 to 14 percent.

Banking assets and liabilities

, Saderat and Sepah are Iran's three largest banks. The government plans to clear government arrears, recapitalize banks and strengthen supervisory powers. IMF estimates public debt could be as high as 40% of GDP once government arrears to the private sector are recognized.

Debts to the Central Bank of Iran

Since 2002, the government has been barred from borrowing from the central bank directly. Instead, it is allowed to borrow from the commercial banks who in turn, borrow from the central bank, and inflate their own balance sheets.
The total debt of 11 state-run banks to the Central Bank of Iran has exceeded $32 billion in 2009, showing a 10-fold increase over the past four years. Bank Melli Iran, with nearly $9 billion, had the biggest debt followed by Bank Sepah, Iran's oldest, with about $4.8 billion. Bank Maskan, Bank Keshavarzi, Bank of Industry and Mines and the Export Development Bank of Iran were next with the respective debts of $4.7, $4.1, $3.5 and $1.1 billion. Private sector banks had much lower debts. Bank Parsian, the largest private-run bank, owed about $421 million to the Central Bank. In addition, the collective debt of state-sector companies to the Central Bank has reached $25 billion.
Debts of banks to the central bank stood at 836.1 trillion rials by the end of the fiscal year that ended in March 2016. Private banks debts amounted to $4.06 billion. Five specialized bank, all state-run, accounted for $18.7 billion of the banking sector debts to the central bank by March 2016.