I have written a lot of times about the Iranian bank landscape as I have gathered some tight insights from my visits. I always mentioned that the situation of Iranian banks behind the curtain of sanctions is something in between high pressure from missing capitalization and refinancing sources as well as pretty comfortable due to high profits within the current interest yields.
So as I have mentioned on and on the danger coming from an opening due to innovative banks and the necessity to highly invest, then the cost issue would come around again.
Costs, costs, costs, really?
Mostly I compare Iran with Germany twenty or thirty years ago. But today I have read a study from Bain Consulting about the situation of German banks. Basically the outcome is pretty challenging and reflects something I can see in my daily work. German banks have some profit gains from the current interest situation and some increase from provision side but still a high cost structure – but much more a digitalization issue.
Meeting corporate governance will be enormous effort
The first pillar of high expenditure comes, and that is something Iranian banks will face with much more impact, from regulatory drivers. These costs for meeting the regulatory requirements in Germany are high since years and will increase in the future. For Iranian banks, which have invested only a small portion of the demanded measurements for good corporate governance, this will be tremendous work and effort in a very short period of time to keep up with Western banks.
Digitalization is going to raise dust
The second expenditure comes from the most important topic. The future will be digitalized and thus means banks have to keep up with this expectation. I am not talking about fancy tools or smart apps for the clients. I am talking about the fact, that nearly no bank has reached a set up in her core banking system, that enables an end -2 - end processing truly as stp. I am talking about the situation that a client’s order, an interest booking or some corporate action are solely produced by the machines, including the deduction of several taxes, calculation of fees and with the right reporting within the legal, client-demanded or bank-internal needed reports.
As far as I see it, banks itself have some great challenges for the future. This is surely what we have seen above, but what we will see more and more and what comes slightly into the focus is the way to make business. The regulator reduces business opportunities for them e.g. by restricting more and more the capabilities of lending money due to the duty of high portions of equity backing. Thus makes the banks no more a risk-friendly and highly rewarded investor but some kind of credit delivery for secure investments. But the fast growing new business will be search for new and better financing sources and thus the banks will have the next problem in their profit generation.
Become strong on the home turf
So from my point of view, Iranian banks should start now to find the strategy fitting to them and their region and doing everything to be a real competitor in this region instead of playing the game of the big banks…..
Your K-Street6 team