Governor’s Speech
Dr. Seif
Frankfurt European Banking Congress
November 20, 2015

In his exulted name

Ladies and Gentlemen,
As the Governor of the Central Bank of the Islamic Republic of Iran, I am very pleased to attend the 25th Frankfurt European Banking Congress.
My presentation today, addresses the re-integration of Iranian banks in the international financial markets, with specific focus on the re-establishment of correspondent banking relationships between Iranian and European banks, highlighting the benefits to both parties.
The international community can benefit from having an economic relationship with Iran. Iran has a sizeable economy; with a GDP that ranks among the 20 largest economies in the world and the second largest in the Middle East. Iran has abundant factors of production, a significant young and educated workforce, well-developed infrastructure, and of course, immense natural resources. Iran has the largest natural gas reserves and the fourth-largest reserves of crude oil in the world. These factors of production, accompanied by productive labor and cheap energy, create a comparative advantage for Iranian enterprises.
As it pertains to external balances, the economy has managed to accumulate a strong international reserve position. The level of external debt is very low with a history of no defaults in payment, not even during war or sanctions. There have recently been some accumulated deferred payments as a result of the lack of payment channels; however, those payments will be settled without delay after the implementation of the JCPOA.
The Iranian economy is not a new market for European Banks, with the two regions having a long history of cooperation. With US$ 2.7 billion in trade, Germany was one of our most significant trading partners in 2010. In addition, our banking system has correspondent banking relationships with 27 German banks. 
I believe there are two main factors that will shape the outlook for Iran’s economy over the next decade: 1) Reasoned macroeconomic policies and 2) Integration with the global economy. This is the reason our government put forth such a substantial effort in dialogue with the P5+1 in order to reconstruct its relationship with the international community. With the JCPOA in place, Tehran is illustrating that it believes in the benefits of cooperation and mutual trade.
Over the last two years, the Government and the Central Bank of Iran have conducted policies in order to ensure stability at the macroeconomic level. The Government has committed itself to a more disciplined and transparent fiscal and monetary policy with a view to promoting growth and tackling high inflation. These measures have been effective, leading to both a meaningfully lower inflation rate and a higher growth rate. Inflation has declined from 40 percent to 13 percent, with the central bank committed to pursuing even further reduction of inflation.
Lower inflation has consequently contributed to greater stability in foreign exchange markets. Additionally, the growth rate has increased from -6.8 percent during the peak of the recession to +3 percent today. It is the Central Bank’s belief that 3 percent growth is well below potential, and that the economy has the capacity to achieve an 8 percent growth target over the course of the current Five Year Development Plan.
Besides, the Central Bank has instituted a number of reforms in order to enhance financial stability, effectiveness of monetary policy and efficient allocation of resources in the banking sector. These reforms widen the scope of central bank supervision.  They aim to address the health of bank balance sheets with measures that reduce bank NPLs. They also promote the extension of credit into the broader economy.
The recent agreement between Iran and the P5+1 countries will have important regional and global implications. Lifting the sanctions will allow Iran to resume oil exports, attract foreign direct investment, and re-engage with the rest of the world on all economic matters. The JCPOA will particularly affect the banking system where sanctions were heavily imposed. Financial transfers, banking activities, insurance and SWIFT will all be restored.
There is no doubt that this agreement contributes to improvements in both internal and external business climates. As such, Iranian authorities are determined to implement the JCPOA, and I believe this is a contributing factor to reducing the potential risk of investment in Iran.
The nuclear deal has created positive sentiments among international companies looking to return to Iran; this is especially true for financial institutions. Our obligation to these international counterparts is to provide an environment that is conducive to market entry, encouraging financial stability, longevity and investor protection.  The Central Bank of Iran commits to take any action in furtherance of this goal.
At present, international investors are permitted to have a 100% ownership share of any bank located in a free-zone and 40% in the mainland.  In the coming months we will increase the latter in an effort to illustrate our commitment to attracting FDI.  In order to facilitate trade, we will also be tabling the potential for the establishment of cross-border joint bank ventures.  Further, in accordance with the regulations, the Central Bank will help guarantee the principal and return of investments through the Iran Investment and Technical and Economic Assistance Organisation.
Finally, the Central Bank is widening its supervision of financial institutions with a view to adopting a regulatory framework that is consistent with Basel III. Minimum capital requirements, liquidity provisions and implementing stress tests will all be benchmarks employed by the CBI to ensure stability in the banking sector.
As a result of sanctions, Iranians have been denied access to international banking services. They’ve been forced to transfer money through atypical channels, have been excluded from being issued credit cards and have been denied certain inalienable rights that all banking consumers should be afforded. Collectively, we need to change this.
The JCPOA is a plan that spans 15-years.  Concurrently, our expectation is to build a long and progressive relationship with our global banking partners.  It is our profound belief that solely short-term interactions between Iran and its friends are of little benefit.  Having a long-term outlook is an essential element for investment in the Iranian banking sector.

Thank you.