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Private problems limit Iran's banking system

State banks are geared to an economy that is mainly state controlled and they dominate much of Iran's financial sector. But the six public banks are starting to fund the private sector, while newly formed, privately owned banks are finding their own niche market through better services and funding. Kate Luxford reports.

Iran's private sector banks

Momentum is building slowly in Iran's
private banking sector

IRAN'S RECEIPTS FROM energy exports are at record levels. However, all but the most conservative of the ruling elite have long recognized that this bounty must form the basis of a more diversified economy if growth is to be sustained and high unemployment and pervasive poverty are to be eliminated. The legislative framework recognizes this: privatization, the fostering of private enterprise and the attraction of foreign investment and expertise have all – in theory – been provided for in recent years.

Implementation is another matter. The state and quasi-state sectors built up since the 1979 Islamic revolution remain entrenched, populist measures such as uneconomic consumer subsidies are politically difficult to abandon, and the government continues to run large budget deficits. Developments in Iran's banking sector, which lags in its adaptation to the needs of a liberalizing economy and is tightly controlled by the central bank, clearly illustrate the challenge.

The sector has been dominated by state-owned banks since the banks were nationalized after the revolution: some 37 financial institutions were merged into six public banks – Bank Refah, Bank Melli, Bank Saderat, Bank Tejerat, Bank Mellat and Bank Sepah.

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