OVERSEAS STOCK EXCHANGES IMPORTANT FOR PASARGAD’S GLOBAL EXPANSION

Iran 2017 | FINANCE | VIP INTERVIEW

TBY talks to Mostafa Beheshti Rouy, Member of the Board of Pasargad Bank, on on developing virtual banking in Iran, capital adequacy, and potential acquisitions in Turkey, India, and China.

In which banking segments, do you see the potential to grow your market share?

We are trying to change our operating model to become a fee-based bank by providing advisory and consultancy services to our clients, both corporate and individual. We particularly want to concentrate on asset and fund management, because now that Iranian entities can operate outside the country, there are many clients who want to hold their assets in a mix of currencies. We are working on business models for fee-based services for our clients. Besides that, we are concentrating on digital banking and IT. Pasargad Bank has been a pioneer in developing virtual banking in Iran and we are continuing to build on that. We are developing new applications, for example related to the Internet of Things (IoT), such as operating all your banking through your Apple Watch. We are a technology-driven bank and are trying to use the best technology available in order to provide good quality services to our clients.

What is your evaluation of the re-entry of Iranian banks to the global financial arena, and what can you say to domestic and foreign companies that are worried about the remaining difficulties in payments?

Since the signing of the JCPOA and its implementation in January 2016, Iranian banks have had positive experiences in establishing new correspondent banking relationships. Still, the big banks are not coming back to Iran. The reason for this is that some of those banks have been fined by the US Office of Foreign Assets Control (OFAC) and have paid huge penalties. They have signed settlement agreements with OFAC and are scared of incurring new kinds of penalties, even though all the banking operations that are happening with Iran right now are fully legitimate and no longer under sanctions. One of the other major issues for overseas banks is the cost of compliance, which has created some hesitancy. Pasargad Bank has been able to establish around 60 new correspondent bank relationships since the signing of the JCPOA. We are dealing with trade finance transactions and opening letters of credit for our clients all around the world with the exception of North America. Pasargad Bank also has a strict compliance policy and sanctions screening process that has been in place for seven years. We have a compliance sheet for every foreign transaction, to ensure it is completely legitimate, there is nothing wrong with the buyer or seller, and the goods are not dual use commodities. We also open letters of credit under the ICC Uniform Customs and Practice for Documentary Credits (UCP 600) and all the information and documentation is provided to the advising and negotiating banks. We have seen a lot of developments since the signing of the JCPOA and we expect to see more, including larger banks with a higher capacity coming to the Iranian market. Probably the issues that remain, which are outside the control of the commercial banks, are those that need to be decided upon by entities such as the Central Bank of Iran (CBI). Iran is on the Financial Action Task Force's (FATF) Grey List and we would like to see the country coming off that and getting onto the White List. This would help us to upgrade our relationships with our correspondent banks worldwide.

How do you see Pasargad's Bank capital adequacy ratio and balance sheet?

Our capital adequacy ratio at YE March 2017 is higher than the minimum recommended by Basel III. Furthermore, Pasargad Bank was one of the first banks to issue its accounts based on IFRS and we did this within the required time frame under Iranian law. The Iranian regulations state that every company should hold their General Assembly within four months of the end of the fiscal year. Only Pasargad Bank and one other bank were able to hold their General Assembly and report under IFRS within this prescribed time frame. The reason for this is that since its establishment Pasargad Bank has had an ambitious goal to be the first Iranian bank listed in the Fortune 500. We established our standards and internal processes in such a way that when the sanctions were removed, we were already ahead in terms of our compliance and practices, and in line with international standards. Even though we have been reporting according to Iranian financial standards, we have been preparing our accounts based on IFRS as well.

How is Pasargad Bank working on its ambition of becoming a global bank?

If we want to be listed in the Fortune 500, we cannot focus only on domestic banking. Even all Iranian banks put together are not big enough for this, so we know we have to become a global bank. We would like to have an international network in the form of branches and fully or partially owned subsidiaries. Our network could be in the form of a green project started from scratch or by acquisition and expansion of existing small banks in other countries. The most natural markets for acquisitions are the ones that have strong business ties and trade relationships with Iran, such as Turkey, India, and China. However, traditionally all international networks of Iranian banks have concentrated on trade finance activities and we want to go beyond this with our expansion. We want to change the whole environment and become active in the local markets in these countries as well. One of the pillars of our globalization strategy is having an international presence. The second element is we would like to open the ownership of Pasargad Bank to foreign investors and overseas banks. According to Iranian law, foreign interests can have up to a 40% share in an Iranian bank. This is something we would like to see happening in the future. The third pillar of our globalization strategy is for Pasargad Bank to be listed on one of the reputable stock exchanges outside Iran, in Europe or Southeast Asia. We know we have to wait for all the sanctions to be lifted and for the market sentiment to turn. We need two or three more years to start implementing our global vision.