Smaller European financial institutions opening up to Iran
(20 June 2016 – Europe) Small financial institutions are leading the way in restoring trade links with Iran, as global bank remain resistant to dealing with the Islamic Republic.
Since international sanctions were lifted earlier this year, the world's big banks have continued to stay away due to fears over being penalised by remaining US sanctions over issues such as money laundering.
However, officials and bankers say, Tehran has made inroads into banking relationships via small institutions, many of which do little or no business in the United States and so feel less legally exposed when they engage with Iran.
"Two hundred small and medium-sized international banks have started correspondent relationships with Iranian banks," Iran's central bank told Reuters.
Although smaller banks can’t provide the same level of financing as global firms, and may offer a limited range of financial products and services, their activities appear to be supporting a gradual revival of trade between Iran and Europe.
Among the 200 banks dealing with Iran are Germany-based Europaeisch-Iranische Handelsbank AG (EIH) and two Italian lenders, Mediobanca and Banca Popolare di Sondrio according to the country’s regulator.
"EIH handles the bulk of Europe's letter of credit business, which gives European exporters an appropriate financial instrument to get their money from Iranian clients," said a spokesman for EIH.
Additionally, the German bank has been providing letters of credit of between 180 and 360 days with deferred payment for business with Iran and other banking services between Iran and Europe, the spokesman said.
Iranian banks are now opening accounts and letters of credit with foreign banks and conducting "currency transfers in the form of issuing payment orders for foreign exchange services and imports", Iran's central bank said.
It added that Iran's main banking relationships had been formed with institutions in Asia and Europe, and to a lesser extent in the Americas and Africa.
As banks see dealing with US dollars in Iran a risk, transactions have been executed in many other currencies including euros, Turkish lira, Japanese yen, Chinese yuan, South Korean won and Russian roubles.
European Union foreign policy chief Federica Mogherini said trade between the EU and Iran increased by 22 percent in the first four months this year - though that still leaves trade far below pre-sanctions levels. Two-way trade plunged 72 percent from 2011 to €7.7 billion (A$11.74 billion) in 2015.
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