TBY asks three banking leaders about their perceptions and strategies for the newly privatized environment in the finance sector.
What have been the effects of privatization on your bank? Has there been a new wave of competition within the Iranian banking industry as a result?
JAHROMI: The very first impact of privatization was a significant increase in the productivity and efficiency of the bank as well as the interest that the bank received. We have been released from complicated government regulations and the bank is now making all decisions through its board and assembly. This has affected the speed of decision making and consequently the satisfaction of our customers and clients. We have developed a five-year strategy plan for the bank to know what to do in corporate banking, where we are planning to reach in international banking, our direction in private banking, and also in e-banking. The strategy plan covers all these areas. We have focused on the expansion of very exclusive services and plan to increase our share of the banking market in Iran so that we can even surpass our biggest rival in the next five years. Bank Saderat of Iran (BSI) consists of 30 independent provincial banks. In the future, we aim to preserve this structure as it facilitates decision-making and through this structure we are able to respond to the different needs of different provinces. Yet, we also have plans to increase the cost-effectiveness of this structure.
TAGHI NATTAJ: Considering the huge potential for banking in Iran and also the huge number of customers, competition isn’t really the issue for now. Also, the older the bank, the greater the trust, prestige, and value the bank has in the eyes of customers and the public. When you’ve been around 20 years and have 7 million customers, this induces trust and confidence.
One of the reasons for Bank Mehr’s success has been our ability to look to the future. I’ve been at Mehr for eight years now, and I know that even before that there was always a vision among the board members and upper management. EFQM is one of the models we are following to give us the best possible direction and to make our management model as efficient as possible. But we are also practicing other standards and strategies, not because it’s compulsory or a requirement set by the Central Bank of Iran, but because we want to apply the latest strategies that are applied in banks around the world. This is part of Bank Mehr’s vision, and it’s a part of our desire to always look to the future. We believe this is something that distinguishes us from other institutions, something that has enabled us to survive and prosper over 20 years.
AFZALI: I think full privatization will be very positive for Post Bank. It is a good process for all financial institutions because I think that the levels of efficiency and productivity we can achieve are more than for state institutions. I think undergoing this process will be very useful for productivity. As you know we had a policy shift with the change in Article 44 of the Constitution. Post Bank is one of the banks that had to be privatized, and we are now a private bank. Around 25% of this bank is held by the Adalet Investment Company. Future share parcels will be offered to the private sector in 2010 and 2011, and this will mean that Post Bank will become fully privatized.
Is Iran an under-banked country? What sort of means are you using to increase your deposit base, and which groups are you targeting?
JAHROMI: We are focusing on e-banking more. By using electronic banking we can reduce costs. We have reduced our branches by 200 in the last year and by a half since starting privatization. We have it in mind to reduce these numbers even further and focus on e-banking and virtual business.
Given Iran’s young population, the rate of population growth, and BSI’s reputation and history, we have even more people interested in opening accounts. We currently have 34 million accounts. We have given out 15 million debit and credit cards to these account holders. As the trend is increasing, we have plans to increase from 15 million debit and credit cards to 20 million by the end of this Iranian year (1389).
TAGHI NATTAJ: This depends on the needs of the customers and also which socio-economic strata they belong to. We don’t target a particular segment of society—we offer different plans, products, and services to suit different needs. Right now we have 7 million customers. The first category is families. We don’t really expect savings from individuals below the age of 30. We expect those savings to come from parents. Above 30 is where individuals begin to have their own independent finances and can have their own savings. From there on they will be consumers. For the first category, families, we have different kinds of savings accounts enabling parents to invest in their children’s future security. Later on, their children can benefit from these savings. For the second category, we offer loans to attract their savings into fixed-deposit or other types of accounts. We offer short- and long-term commercial loans for both individuals and companies.
AFZALI: We have a very good system for promotion and education in this area. When we are going to open a branch in a village, we launch a local promotion to introduce our services and the advantages of working with us to the people living in these areas. We use television advertisements, brochures, and pamphlets to explain to the public what our services are. But I think the education level of our people, even those living in rural areas, is high. Some of them ask for internet facilities from us. Traditional banking services such as the opening of accounts and payment services are simple to provide and are very popular. In our targets, providing these services is an ongoing program. Because of the infrastructure in rural areas, it is not hard to give these services to them. If the rural areas have internet facilities, they can use these services. We have core banking in these areas and giving these kinds of services is not very difficult.
What are your policies with regards to credits and loans?
JAHROMI: We finance projects in two ways: we directly collaborate in implementing projects or we give financial facilities to those interested in starting their own projects. Currently, we have six holding companies and through these holding companies we start projects. We mainly collaborate in projects that have fast returns on investment. Depending on the speed of the return of the investment we have been involved in projects in the petrochemicals, gas, steel, rail, electricity, and mining sectors, and even in the commercial sector.
We already have a lot of good investments in big projects, and we are also working extensively with SMEs. It is natural that given our vast resources we will be more efficient than other Iranian banks. And given the large number of branches of BSI, even in small cities and villages, people will refer to the bank and naturally the bank will respond to their needs.
TAGHI NATTAJ: Around 60% of our resources go to offering loans to individuals, and 20% of our resources are invested in the stock market. The rest goes into real estate.
AFZALI: Microfinance is one aspect of retail banking in terms of lending. We are not the only provider of microfinance in Iran, but we are the biggest. Microfinance is one aspect of retail banking. At first we focus on microfinance in terms of lending. Then we focus on small customers and their deposits. We focus in these terms on retail banking. We have a rule in Post Bank: all of the deposits should be mobilized for rural areas. All of the deposits we mobilize from rural areas are provided back as loans to facilitate rural development. People living in Iran’s rural areas do not hesitate from taking advantage of the credit products we offer. Most of them are using these facilities to improve their farming activities, such as buying animals to increase the family income, or buying farming implements and machinery like cars or tractors—equipment that makes farming activities easier.
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