THE PEOPLE’S BANK

Iran 2011 | FINANCE | INTERVIEW

TBY talks to Dr. Ali Divandari, Chairman and Managing Director of Bank Mellat.

Ali Divandari
BIOGRAPHY
Dr. Ali Divandari is currently the Chairman and Managing Director of Bank Mellat.

Bank Mellat was one of the leaders in the privatization of the Iranian banking sector. What sets Bank Mellat apart from its rivals in the banking industry?

The bank was marked out for privatization according to Act 44 of the Constitution, and in fact it was the first Iranian bank to be privatized in early 2008. The management of the bank, especially my colleagues, played a very important role in the privatization of Iran's banking sector. After Bank Mellat was privatized, other banks joined Act 44, and now the share of the private banking industry is more than 50% of the system. At present, more than 80% of Bank Mellat shares are in the hands of the private sector, and for the past two years the directorship of the bank has been outside of government control. The shareholders now have control over the bank and four out of the five seats on the Board of Directors are in the hands of the private sector. One seat, amounting to a 20% share, remains in the hands of the government, though within a very short time this stake will also be sold off, making the bank fully privatized. For the last two years, the bank has been managed under a new charter based on the rules and regulations of the private sector. Bank Mellat has become the largest private bank in the country because of its financial position and in terms of the capital resources it holds. After increasing its general capital, which happened this year after the General Assembly meeting, the total capital of the bank now amounts to something around $1.6 billion.

What activities does Bank Mellat specialize in? In what sectors of the Iranian economy does it have the best penetration rates?

Bank Mellat's specialty area is retail banking, and it is most active in the retail banking processes of the financial market. We have about 20 million customers, meaning that most Iranian families have some involvement with Bank Mellat. One of the main sectors that Bank Mellat is active in is that of construction and the reconstruction of underdeveloped regions of the country. This is an area of great importance to Bank Mellat and we are true experts in this field.

We have been very active in providing small-sized credits to families, for example to repair cars, move home, rent accommodation, or for other general family needs. In the retail market for micro-financing we are very well known around the country. We have also been active in many aspects related to social responsibility, such as helping villagers to rebuild their houses. And in order to protect the environment we have made available special loans to take older vehicles off the road and have them replaced with newer models. In our retail activities we have also been active in the agriculture sector, buying agricultural products for cash from farmers. The main agricultural product in Iran is wheat, and it is cultivated in nearly every village. Almost every year 12 million farmers are active in the cultivation of wheat. In Iran wheat is bought and sold by specialist traders, meaning that farmers do not have to look for customers as they sell through a system that is supervised by Bank Mellat. Some 1.5 million farmers every year deliver their wheat and receive cash immediately, and this system has been operated by Bank Mellat for the last five years.

Another specialty that the bank has become famous for is that it is active in promoting development in the more disadvantaged regions of the country, such as building schools, cultural centers, and giving financial aid to students to continue their education. Bank Mellat is a well-known institution in Iran—it is the bank of the people.

How much of your budget do you allocate to regional development projects?

In the coming year we are going to build more than 30 schools around the country. Another aspect of the bank's commitment to social responsibility is that we provide no-interest credit facilities to people convicted in court for crimes like driving accidents. In these kinds of cases, those convicted often do not have enough money to pay compensation to a victim's family, and so we facilitate the payment of compensation so that they can rejoin their families. In the past five years some 3,000 people were released from custody thanks to the loan facilities we provide.

After privatization the first aim of any bank should be to maximize profits. Have you experienced any objections from your shareholders regarding these other social development activities?

In fact, what I just explained to you has increased since privatization as social responsibility is considered a core duty of the bank. Our shareholders know that these kinds of activities help to strengthen our financial position in the market as well. In retail banking our main focus is on families with regular salaries. There are about 50 million people around the country using electronic debit cards. In retail banking Bank Mellat offers a wide range of electronic services, all of which were greatly welcomed by our customers. In the industrial sector we have been very active and have assisted many companies, such as in the automotive and cement sectors. However, our main focus is on retail banking, though we have also done a large amount of work on the investment, trade and commercial aspects of banking.

What was the effect of privatization on your company? Has it changed the way you approach banking?

In terms of human resources, all state regulations on employment were put aside after privatization and we are now following the policies of our human resources department regarding employment, like any private company. We have been successful in re-engineering our banking systems and increasing the quality and speed of providing services to our customers. What brought about this change after privatization was the fact that the bank was more active in the IT sector and was able to meet all the requirements for working in this field very quickly. Before privatization we did not have an open hand to invest in the sort of telecommunication systems needed for e-banking. As for the financial aspects of our operations, we have been very successful in both reducing costs and increasing our net profit.

Did this rationalization of the bank's activities after privatization result in branch losses?

We reduced the number of branches, but this was not related to privatization. It started three years ago and the reason was that some branches were not economic to operate. We evaluated all of them, and as this is an ongoing process in the future some other branches may also close. Of course, with electronic banking we will need even fewer branches. In the modern world, the larger the investment you make in IT, the less you have to invest in the physical aspects of banking. Of course, we will always have physical branches because we are involved with families, and poor families do not have internet facilities. We currently have around 1,800 branches in Iran and 24,000 employees. Increasing or decreasing the number of employees will depend on the new programs and strategies of the bank. For now, we need this number of employees and use them all.

Which sectors of the economy are you targeting for loans, and have you experienced any difficulties on your loan book?

Apart from micro-credits and small-scale financing, an important field for us is the energy, oil, and gas sectors, such as the South Pars field and the Iran LNG Company. Some countries do not like us to be active in this sector, and there has been some negative propaganda in the global mass media related to the investments we have made for the sake of the people. They imagine that most of our activities are international, though this is not true and we have few operations outside the country. Unfortunately, their intelligence on Iran and on the banking system is wrong. For example, both the EU and the US Treasury describe Bank Mellat as being a state-run institution, which is completely incorrect. If the EU or US Treasury can make this kind of huge mistake regarding the ownership of a bank, then they are probably mistaken about other aspects of the country too.

Do you have any special criteria that you use when assessing large-scale projects?

The most important criterion is the profitability of the project. We take the feasibility of the project into consideration. Of course, many of these projects are huge and no single bank can fund such a deal on its own, and so we enter into syndicates with other banks to fund these projects.

The number of Iranian banks is on the rise, and privatization is increasing the level of competition between them. What is your strategy to grow in such a competitive market?

We are doing our best to increase the quality and quantity of the services we offer to our customers and use different tools to bring our services to them. As a result of the restrictions imposed on our international operations, we are trying to develop our internal market so that we can cover the 4% of profits that our foreign operations used to supply. We are trying to attract more customers so as to increase our level of deposits, and this will allow us to offer more facilities that are useful to people.

You are also a university professor in the field of strategic management. How is Bank Mellat looking to improve the training of its employees?

Let me explain about human capital and its peculiarities. In a country like ours, there is a great deal of room to make developments in the field of human capital, and we know that if development is made there will be significant change. In the world, a lot of stress is put on creating differentiation through human capital, and we also accept this. In fact, human capital is the element that brings creativity, innovation, and value creation, and can help develop an organization from within. At Bank Mellat we have a comprehensive program for the development of our human resources. There are three key dimensions to this program. The first is training, the second is empowerment, and the third is the individual development of human capital. We are working in all of these fields and are actively looking to develop the talent we have in our organization.