The Governor of the Central Bank of Iran (CBI) announced on Monday that two banks owned by the country's armed forces will be merged into Sepah Bank in the next ten days.
According to Abdul Nasser Hemmati, Mehr Eghtesad Bank and Hekmat Iranian Bank will be merged into Sepah Bank, and three other armed forces banks will gradually join the process.
Mehr Eghtesad Bank was initially established under the name Basijian Fund in 1993 and was supposed to provide banking services to paramilitary Basij (mobilization forces) members, but soon its range of services expanded to the public.
Furthermore, three police-owned banks, Ghavvamin, Ansar, and the Samen Institute of the Islamic Revolution Guards Corps, are set to be merged with Sepah Bank.
Charged with providing commercial and financial facilities for Iran's missile program, Sepah Bank is under U.S. sanctions.
The merger of the banks comes at a time when the country's banking system is in a fragile situation due to corruption, U.S. sanctions and poor economic conditions. Most banks in Iran would fail without infusion of printed money by the CBI.
There have been many banking scandals in the past decade when well-connected people borrowed huge amounts of money from government banks and never repaid. Many smaller banks have also failed due to corruption and the government was forced to partially compensate clients.
The accumulated loss of Mehr Eghtesad Bank in 2018 was about $106 million and Ghavamin’s loss was approximately $20 million.
At the same time, military-owned banks had a total of about $4.5 billion in assets and in return, they had a debt of $4.4 billion.
According to official data released in September last year, nine major Iranian banks are loss-makers and their accumulated losses have reached approximately $1.3 billion.
Tejarat Bank, in which the government has a significant share, is facing accumulated losses of more than $260 million and is the second-largest loss-making bank in Iran.
Saderat Bank is also among money-losing banks and the government directly and indirectly, controls more than 58 percent of its shares. It is also struggling with more than $200 million in accumulated losses.
The Islamic Republic's official news agency (IRNA) reported in September last year that the performance of banks listed on the stock exchange shows that eleven have a positive balance sheet while nine have accumulated losses. The total accumulated losses of these banks are more than five times their earnings, IRNA reported.