Crisis Leads Iranian Armed Forces Banks To Be Merged Into Bank Sepah

The Central bank of Iran (CBI) announced on Saturday March 2 That five banks and financial institutions affiliated with the Iranian armed forces will be merged into Bank Sepah.

Iranian banks have been suffering from financial crisis for several years, with outstanding loans given to insiders and lack of proper banking supervision. Many credit institutions have gone bankrupt, leaving millions of ordinary people with no savings.

This has put undue burden on the government and the central bank to often rescue shaky banks.

According to the CBI, the measure is based on a ratification by the Money and Credit Council and the High Economic Council, which has been approved by the heads of the three branches of the government as part of an initiative "to reform the banking system and putting the money market in proper shape."

Iranian economist Ahmad Alavi told Radio Farda that, "According to the Central Bank the aim of the merger is to 'solve some problems' in the banking system, but there is no transparency regarding the nature of those problems. However, the problems appear to be a combination of lack of compliance to banking regulations, lack of transparency, as well as money laundering and high risk of bankruptcy."

Alavi stresses that these banks are plagued by widespread corruption, and offering unreasonable interests, while they are practically on the verge of bankruptcy because of heavy losses. Nevertheless, the Central Bank conceals the problem to prevent customers from rushing to the banks to withdraw their money.

The five entities to be merged into Bank Sepah are: Bank Ansar, Bank Qavamin, Bank Hekmat Iranian, Bank Mehr Eqtesad and Kowsar Credit Institute. Some of these are said to be suffering from accrued losses.

Kowsar Credit Institute was established by the Ministry of Defense in 2008. Bank Ansar belongs to the Islamic Revolution Guards Corps (IRGC) and is part of the IRGC's cooperative foundation.

Bank Mehr Eqtesad Iran, which belongs to the Basij militia force, was first launched as the Basij Fund in 1993 to offer banking services to Basij members, but it later extended the scope of its activities to public domain.

Bank Qavamin was established in the year 2000 by Mohammad Baqer Qalibaf, who was Iran's police chief at the time. Qalibaf later started his political activity and became the mayor of Tehran and took part in several rounds of presidential elections with no success.

Bank Hekmat Iranian belongs to the army of the Islamic Republic of Iran.

The Central bank says that after the merger, all of the services rendered previously to their customers by individual entities, will be offered by Bank Sepah "with a strong management, as usual."

It was the Iranian minister of defense brigadier general Amir Hatami, who in 2017 first broke the news about delegating some of the financial entities affiliated with the armed forces to civilian organizations.

Hatami said at the time, that the Islamic Republic leader Ali Khamenei has ordered the chief of staff of the armed forces to do a feasibility study about delegating "irrelevant" organizations within the army, IRGC and Ministry of Defense to civilian bodies.

Bank Sepah, which is going to take delivery of the armed forces' financial empire, has been maintaining close links to the military from the date of its inception, as it is the bank that handles military personnel's financial affairs, including their salaries and pensions.

Some economic observers say like most other Iranian Banks, Sepah has not been paid back the loans it has given to well-connected individuals and financial entities in recent years.

According to the Central Bank, the Iranian Stock Exchange Organization is to handle issues relating to the shareholders of the four bank and one financial institutions to be merged in Bank Sepah.

The CBI has promised that all those who worked for individual banks and institutions would be carrying out their responsibilities as before and the payment of their salaries will not be halted at any point. However, economic analysts have said that laying off a number of their staff members currently working at more than 2000 branches will be inevitable.

Previous plans by banking managers for the merger of some of these banks have remained inconclusive. However, the merger is more likely to materialize this time as it is evident by the calibre of decision makers and the pressures on the banking system that forces it to tighten its organization.