Russian investment bank Renaissance Capital, citing sources including Iranian commentators and business people, says Iran’s banking looks more like an emerging market than a frontier market sector in terms of penetration of services.
Citing World Bank data for 2014, RenCap analyst Armen Gasparyan says in a report that 92% of Iranians aged over 15 have a bank account, 75% have a debit card, and 32% have borrowed from a financial institution. While Iran’s population is similar to that of Turkey, Iranian banks have 40% more branches than Turkish lenders.
Iran’s banking sector, which is Islamic law-compliant (the country has one of the world’s largest Islamic banks), consists of 20 private and eight state-owned banks with an outstanding credit portfolio of $224bn. This makes it similar in size to that of South Africa, Gasparyan says.
Credit penetration in Iran stands at 67% of GDP. It is higher than that in Central and Eastern European countries, Brazil, Russia, or India, and is just below the level in Turkey. Deposit penetration, at 71% of GDP, is one of the highest in Europe, the Middle East and Africa (EMEA), the analyst says.
Yet most of Iran’s banks are listed nationally, and the Islamic republic’s banking sector accounts for only about 13% of the country’s total market capitalisation, – the average MSCI frontier markets index stands at 47%, – and is one of the most fragmented banking markets in the emerging market world.
The health of Iran’s banks is challenged by a large share of bad loans and non-core assets. RenCap estimates that these problems would cost about $30bn to solve.
On the other hand, in lending, Iranian banks typically require collateral with a value exceeding that of the loan to be provided, including both the principal and the interest payable, and, because of this, Iranian banks have some of the lowest non-performing loan coverage rate in EMEA, Gasparyan says.