Can you briefly outline the history of Bank Saderat?
Bank Saderat was founded 58 years ago by the private sector in Iran and held a substantial part of the country's economy. After the revolution, the bank was nationalised and in June 2009 was privatised, to become one of the top private banks in the Middle East. At the last general meeting, over 10 million shareholders approved a 50% increase of the bank's capital from $1.6 billion to $2.4 billion incorporating its profits. This improves our lending ability to customers and allows us to grant loans up to 700 million euros in size. The increase became necessary because we were involved in investing up to $12.5 billion in the oil and gas industry.
Has privatisation changed the bank's strategy?
We have defined a new strategy. We have a new management team and new rules of employment. We have also decided to increase our global presence.
Before its privatisation, the bank had plans to expand in Syria, Malaysia, India, China and Iraq. Is this still your strategy? Are you also planning to have a presence in Latin America and Africa?
To safeguard the interests of our customers, we need to expand internationally. I want to emphasise that the bank's foreign trade amounted to about three billion euros. As a private entity it grew to seven billion euros last year. We achieved this result, because, as a private entity, we were able to maximise our resources. Without making significant investments, we have reorganised ourselves. We also have a different approach to profits. We now have a 14% share of the market in Iran; our target is to take it to 20% next year.
Had it not been for the embargo, we were expecting to triple or even quadruple our business in Europe, particularly in Germany and France. It is our strategy to open new subsidiaries, but we have only been privatised for one year. Today, in the countries that you have asked about and in others, we are actively working to launch our own banks or joint ventures. We had a representative office in the United States which was closed whilst the bank was a state bank. We're now trying to reopen it.
Bank Saderat was placed under embargo in September 2006. Will the privatisation allow you to lift the sanctions?
We have to fight back because there is an embargo. An effective manager is one who seeks opportunities and can transform them into viable businesses. The US and Europe's embargo targets Iran's state and public entities. We were informed we were under embargo because the bank belonged to the Iranian state. Last year we became a private bank. I wrote a letter to the European Commission and to the central banks in the UK, France and Germany, stating this fact. The West says that it does not to want the embargo to impact upon the population, but the bank is now owned by private Iranians. We ask you not to embargo Bank Saderat.
Is your action purely political or have you instigated legal proceedings, like Bank Melli in the UK?
We are involved only in the legal side with the European Union and with the countries who put us under embargo. I hope the judicial review in countries such as France will look closely at our records and drop this embargo.
What was the impact of the embargo on your bank and how did you cope with this situation? Especially, since June 2010 when the Security Council adopted a new set of sanctions, the aim of the United States and Europe was clearly to paralyse the Iranian banking system and prevent any trade, investment and technology transfer in the oil and gas sectors.
There will always be a way to circumvent the effects of an embargo. The economy will make its own natural adjustments to compensate for the restrictions imposed upon it. Historically, you will find that embargoes often had a positive effect on many developing countries. Forced to fight the sanctions, these countries made fantastic progress. Why would this not be so in our case? The former French President, Jacques Chirac, said "Too much tax kills tax". I would paraphrase that: "Too much embargo kills embargo!" According to the West's research, Iran's capability to cope with contingencies and difficult situations is above average. Had I been a European leader, instead of imposing sanctions on Iran, I would have tried to cooperate and be helpful in order to achieve a win-win situation.
While the West has lost contracts with the embargo, how has Iran lost out?
Any embargo can have adverse effects on both sides. That is obvious, but what counts is who loses out in the long term. The amazing progress of our oil and gas industry, for example, is due to the ingenuity and talent of our engineers and scientists. The embargo, ironically, has enabled us to make a huge leap forward. The same countries that impose the sanctions are also breaking them because they need an important market like ours. The economic embargo for a powerful nation like Iran has even less impact, given our geographical location and our influence in the region. In the long run, you can be sure that it is not Iran that will lose out. Of course we are suffering from the sanctions, but again, those who put us under embargo, especially France and Germany, are similarly suffering from high unemployment and the effects of the economic crisis. When you give up your market share, others will quickly come to take your place. We have been under embargo for 30 years now, and if you look at the results, you will find that Europe has greatly lost out while China, Russia, Korea and Japan have made tremendous gains.
Has the embargo led to financing difficulties for Iranian trade and created additional costs?
Our mineral and oil and gas resources are certainly vitally important. The costs of circumventing the embargo are high, but our profits and margins are so good today that we are quite prepared to pay double rather than to stand idly by.
Is this possible because the price of oil has risen, generating important currency reserves?
Certainly. There's oil, but also all the petroleum derivatives and mining. Oil is important to our economy but it is not everything. If we were working with profit margins of only 3-6%, I would understand your concern. Investors are still very happy if the return on their investment takes 5 or 6 years now, instead of 2-4 years as was the case before. For some of our projects, if not most of them, the profit margins can reach 30%. You can see that we enjoy strong margins.
Historically the reputation and reliability of Iranian banks throughout the world has been excellent. Today, we have funds that are frozen in western banks because of the embargo. But don't forget that Iran also owes the West money. How does it expect to get paid? If it requests its money back, you will be told to use the blocked funds. So who is losing out in this game? Of course, we are fully prepared to meet our commitments, as we have always done--but again, think whether it is the Iranian banks or the West and its economies that are the real losers? Another unforeseen consequence of the embargo will surprise you. On one side, the West says it wants to fight money laundering and tax havens. But from the moment you impose an embargo, the black market economy flourishes. For example: if we make a Swift transfer, there is a reference number, it is very clear where the money comes from and where it goes to. However the embargo creates many" grey areas". Who benefits from putting a bank with 60 years of experience and branches all over the world under embargo? We are in an extremely sensitive region for money laundering and all kinds of evils but instead of helping us, you put spokes in our wheels.
What is the share of your business in Iran and abroad, and has it changed with the sanctions?
Some 10% of our total business is international and 90% is national. The 10% has not decreased, and this is reassuring. If the embargo continues, as CEO, I will have to make staff cuts in France, Germany and the UK. Again, I ask, who is going to suffer?
So you welcome the embargo?
No, I just change my ways of doing things, and the West is the loser in the long term. Countries such as China, Turkey and Korea are newly industrialised. Iran has thousands of years of history, and Europe also has a very rich culture. Basically, we would like to expand our activities with countries with whom we have common ground on a cultural and industrial level. But you have left us with no choice. France and Germany were signatories to the construction of the nuclear facility in Bushehr. If they had fulfilled their commitments, Iran would not have looked to Russia.
Iran said last August that it would rid itself of the dollar and the euro in its trade relations, As a banker, do you think that is feasible?
As a man and not a banker, I am convinced that the time when a single currency, be it the dollar or any other one, ruled the world is over. Other strong currencies have emerged. Sooner or later they will play a bigger role in the markets. In Iran, five years ago, we converted a large amount of foreign currency reserves into gold, whose price has since greatly increased.
Historically, every time Europe followed the US unconditionally, it was Europe who lost out. Just look back at the last 30-40 years, there is no reason for it to change. Your American friends are very good at sharing the risks, but never the gains!
The Iranian banks hold 37.5% of Shariah-compliant global assets, which total $235 billion, and six Iranian banks are in the top 10 Islamic institutions. Is there anything special about Iranian Islamic finance?
No. Quite simply, we follow the Shariah, there is no difference. There is one peculiarity, however. In Iran, come what may, the initial investment plus a minimum profit, defined from the outset, is guaranteed.
What are your future ambitions?
First, as a bank we want to develop internationally and to invest in infrastructure throughout the world. Most of our customers are Iranian investors and we have projects in Latin America and Africa. We have agreed with some of them, particularly in Africa, to undertake financing in the form of joint venture partnerships. For example, we have our own cement factories in Africa and Latin America. We are also involved in the construction of hydroelectric dams. These investments are conducted through finance and investment companies we own. If you continue with the embargo, I'm sure that in 5-10 years, we will install civil nuclear technology in neighbouring countries. In the last six months, our investments have multiplied threefold, particularly in Africa but also in Latin America, Southeast and Central Asia. In its five-year plan, Iran plans to invest between zoo and 250 billion euros a year in Iran's infrastructure and banking. Bank Saderat plans to have 30% of this market. How can anyone ignore this economic reality and be absent from such an important market?
Founded in 1958, today it is the first private bank in Iran and is ranked 17th in the top 100 ranking of Middle Eastern Banks. It owns two independent banks and has 22 foreign subsidiaries; has been active in France and Germany for over 40 years; and has 3,000 branches in Iran. Some 34 million accounts have been opened in Iran and worldwide. It has 38,000 employees in Iran and abroad.
Seyed Mohammad Jahromi
Fifty-one-year-old Seyed Mohammad Jahromi holds a doctorate in strategic management. He has enjoyed a varied career in the political, economic and academic arenas, At just 23 years of age, he was appointed governor of the province in Zanjan in the west of Iran, Since then he has held the position of governor in various localities, most latterly in Fars, He is a past president of the Business School of Tehran University and was also in charge of the economic programme named 'Chashm Andaze Equtessadi' (Economic Vision), the blueprint for Iran's development over the next 20 years, which is currently under implementation. Before being appointed CEO of Bank Saderat by the Board of Directors, Jahromi was Minister of Labour and Social Affairs. He has since relinquished all political responsibilities.
CONSOLIDATED BALANCE SHEET HIGHLIGHTS BANK SADERAT IRAN GROUP (IN MILLION OF DOLLARS) 20/03/2008 03/20/2009 03/20/2010 Assets 43,062 42,148 48,754 Liabilities 39,697 39,306 45,734 Customer Deposits 29,589 28,060 31,899 Loans to Customers 24,437 25,034 30,398 Shareholders' Equity 3,365 2,842 3,020 Income Statement Highlights Net Interest Income 2,999 3,315 3,909 Non-Interest Income 1,243 848 1,021 Operating Income 4,242 4,163 4,931 Operating Expenses (2,588) (2,435) (3,026) Operating Profit 1,654 1,728 1,904 Other Expenses (936) (1,016) (1,269) Provisions (513) (417) (253) Income Tax (35) (40) (31) Net Profit 170 256 361 Key Ratios Expenses/Income 61% 58.5% 61.4% Net Profit/Operating 4% 6.1% 7.3% Income Return on Equity 5% 9.0% 12.0% Return on Assets 0.4% 0.6% 0.7% Loan/Deposits 82.6% 89.2% 95.3%…