The Iranian government continues to wind down its presence in the local finance sector, seeding control to private investors.

The local banking system in Iran has seen nearly a century of development, and with the introduction of new e-banking technology the sector can look forward to further growth and increased penetration. Although buffeted by the global economic crisis, the local banks have demonstrated remarkable resourcefulness in seeking to provide credit to the domestic economy.

The need to introduce tighter banking regulations, especially on credit allocations, has risen to the fore since late 2011, and the government has embarked on efforts to improve the oversight functions of the Central Bank of Iran (CBI), the main market regulator. Over 2011, the CBI began raising the minimum capital requirements for the banks to strengthen the system, and it has relaxed some deposit rates in order to encourage the national level of deposits in the system.

One of the key dates for the Iranian banking system was the introduction of sharia-compliance requirements in 1983, which over time have become increasingly sophisticated and now successfully mimic the functions offered by standard commercial banking lines. The success of the sharia-compliant system has rocketed Iran to first place globally in Islamic banking asset tables, well above rivals Saudi Arabia and Malaysia.

The banking system can be broadly split into five main categories, though it is the first three categories that make up the lion's share of the banking industry. There are three commercial state-owned banks, Bank Melli, Post Bank, and Bank Sepah, in addition to another five specialized state-owned banks. These banks include the Export Development Bank of Iran (EDBI), Industry and Mine Bank, Bank Keshavarzi, Bank Maskan, and the Cooperative Development Bank.

The private sector controls 19 banks in total, with leading names such as Saderat Bank, Mellat Bank, Pasargad Bank, Tejarat Bank, and Saman Bank. A special category of near-bank institutions also exists in the country called “Gharzolhasanah," and these replicate many of the functions of smaller-scale credit providers. Two such institutions exist at present, though in the past many of the fast-growing private banks graduated from the Gharzolhasanah school. The two participants in this sector are Mehr Bank and Resalat Bank. To round off the banking sector there is the Credit Institution for Development, also known as the Tosse-eh Credit Institute. The last three institutions are on course to either achieving a full banking license, or may be encouraged to merge with those further up the chain.


The largest bank in Iran by assets according to The Banker magazine was Bank Melli, at $79.91 billion as of the start of 2011. Bank Melli is Iran's oldest locally owned finance institution, established in 1928, and has a network of over 3,300 branches and 43,000 personnel. Bank Melli reported a return on capital (ROC) of 41.7% in 2011, making it one of the best performing banks in the system. Bank Sepah, however, takes the title as the longest-running finance institution, established in 1925 and having over 2,000 branches across the country. In 1Q2011, the bank reported assets of $25.11 billion and liabilities of $23.86 billion, according to the latest figures available from the bank.

Post Bank Iran rounds off the list of state-owned commercial banks, having arguably the largest distribution network across the country of some 400 main branches and over 13,000 points of contact. Having such a large distribution network that mimicks the postal network in the country gives the bank access to a large deposit base. Post Bank only received its license in 2006, and is one of the youngest banks to emerge from the government sector.


Iran's specialized state-owned banks are devoted to directing their activities to specific sectors of the economy. Bank Kesharvazi's activities are tightly knitted to the needs of the rural sector, and through its 1,900 branches and 17,000 employees it seeks to provide farmers and agribusiness with deposit and credit facilities to promote agriculture. According to the Mohammad Talebi, President of the bank, Keshavarzi's management target is “Promotion of the bank's expertise status, while obtaining an appropriate share of banking services." The bank is heavily involved with state agricultural development policies, such as the Agricultural Development Plan (ADP), through which some IR21 trillion in credit facilities will be made available for rural producers.

Industry and Mine Bank is one of the heavy hitters in the development bank sector, and it reported assets of $9.43 billion in 1Q2011. The bank has 65 branches and over 1,100 employees, and took a 14% share of all facilities granted to the industrial and mining sectors within the country. Its total registered capital was $2 billion for the reporting period, with a capital base of some $2.5 billion. The Banker rated Industry and Mine Bank as the second most credible bank in Iran; it lost first place to its segment partner, EDBI.

EDBI has some 34 branches across Iran as well as three overseas branch offices, and it is devoted to providing export-import finance for trade. In its annual statement delivered at the end of 1Q2012, the bank reported assets of $5.58 billion. The credit-to-asset ratio for the bank was assessed to be 28.57% in 1Q2011, making it a leader in the sector for this metric.

Maskan Bank is devoted to activities in Iran's real estate sector, and has seen rapid growth as the state has used the institution to champion affordable housing schemes, such as the Mehr Project. The bank's assets and liabilities grew by nearly 50% over the 1Q2011-1Q2012 period, reflecting the boom in the local real estate market. The Cooperative Development Bank completes the five main development banks, targeting associations, SMEs, and micro enterprises who fit the lending and deposit criteria the bank promotes.


The large-scale privatization campaign over the past decade has witnessed the flowering of Iran's private banking industry, as state banks joined the ranks of the private sector and private credit-providing institutions upgraded their licenses to full bank status. As the Chairman of Tejarat Bank, Mohammad Reza Fellah, put it, “The appetite for privatization in the finance sector is still very high, and the government is creating new rules to divest even more."

The leading bank in the private sector is Mellat Bank, which reported assets of $68.28 billion as of 1Q2011 according to exchange rate data from that period. The bank is a leader in many areas of business, and has managed to grab a 38.7% share of the local credit card market. Its 1,820 branches and some 24,000 staff underline its market penetration. As part of its international reach, the bank has branch offices in Turkey and South Korea, as well as subsidiaries in Armenia, the UK, and the UAE.

Saderat Bank reported assets of some $54.88 billion for the annual period ending 1Q2011, and it is considered to have the highest capital base of a bank of its type in the sector, at $3.11 billion. The bank specializes in trade financing and letters of credit, and is heavily involved with Iran's foreign trade, having 3,300 branches within Iran and operations in 30 other foreign companies. The bank is majority owned by the Ghadir Investment Company, one of the largest listed companies by market capitalization on the Tehran Stock Exchange (TSE).

Tejarat Bank is also grouped in the top tier of Iranian banks, with trade financing at its core, though it has now moved successfully into being a major player at all levels of the industry. The bank reported total assets of some $45.16 billion in 1Q2011, and was assessed by The Banker as providing an ROC of 27.14%. Chairman Fellah, was upbeat on the future of Iran's economy following the devaluation of the rial, saying “We can actually increase our exports and decrease our imports, developing and strengthening industrial production within the country." The bank is looking to increase the roll out of POS machines across Iran as a way to benefit from increased consumer interest in debit- and credit-card use.

Coming down the list is Pasargad Bank, another broad-based finance house listed on the TSE. It reported assets of $19.18 billion as of 1Q2012, and liabilities of $15.48 billion. It has some 296 branches across the company, and employs 5,708 staff. The bank has been heavily ramping up its presence in the market, adding some 1,200 staff and 28 branches over the 2011-2012 period. It is rated second in the private banking industry for deposits, having a 22.76% market share, while it tops the ratings for the private industry for letters of credit, guarantees, and investment services. In August 2011, the bank launched an IPO on the TSE, broadening its private shareholder base. Total growth in liabilities was 24% for 2011-2012, down from the robust 46% growth seen in the previous year. Its capital adequacy rating was a healthy 24.71% and it provided an ROE of 4.91%.

Another institution looking to break into the top tier is Saman Bank. Following a reorganization of the bank's procedures, depositors responded favorably, boosting deposits by 39% over 2011, according to the CEO of the bank, Vali Zarrabieh. At the end of 1Q2011, Saman Bank reported total assets of $8.19 billion, and total liabilities of $7.73 billion. Branch numbers were up 17 to 123 outlets in 1Q2011, although Zarrabieh is looking to improve growth more on the electronic side rather than through bricks and mortar expansion. “We are not focusing on growing the number of branches, rather we focus on increasing the number of retail clients by offering them the ease of use of e-banking services," Zarrabieh explained to TBY.

The influence of the private banking industry in Iran is swiftly overtaking that of the state-led sector, as the government looks to move away from its direct role. The place of electronic banking is increasing for all banks, especially those on the private side looking to rapidly increase their customer base, though to do so without forgetting risk quality.