Iran’s banking system â similar in size to that of South Africa on some measures â is more like an emerging market than a frontier one, says new research.
With credit and deposit penetration higher than in many emerging markets, the banking sector may be attractive to international investors should the lifting of sanctions allow foreign investors to buy stocks in the near future.
“While the banking sector has operated in isolation for many years, many characteristics remind us of emerging market rather than frontier market financial systems,” says a research note by Renaissance Capital, an asset manager focusing on emerging and frontier markets.
The firm says Iran has a similar population to Turkey but 40% more bank branches. Iran’s banking sector consists of 20 private and eight state-owned banks with an outstanding credit portfolio of $224 billion, it says.
There are concerns over banks’ exposure to the property sector, however.
“The health of Iran’s banks is challenged by the large share of bad loans and non-core assets, but we believe government support could help to clean up banks’ balance sheets and address capital concerns,” says the note.
The Iranian parliament recently voted to approve a deal with the major world powers that would lift sanctions in exchange for Iran limiting its nuclear programme, removing another hurdle to implementing the deal.
The key sanction for investors is the ban on Iranian institutions using the Swift settlement system. According to one fund manager, the removal of this ban is “a question of flicking a switch”.
©2015 funds global mena