Iran's Military Steps Back From Economy With Six-Way Bank Merger

(Bloomberg) -- Iran is combining six local banks as President Hassan Rouhani looks to curb the military’s role in the economy and bolster the country’s financial industry.

State-run Bank Sepah will take over five lenders linked with the security forces -- Ansar Bank, Ghavamin Bank, Hekmat Iranian Bank, Mehr Eqtesad and the Kowsar financial credit institution. This is “an important step with a view to maintaining stability and the health of the banking system,” Iran’s central bank said on its website Saturday.

With the economy under strain after the re-imposition of U.S. sanctions, the merger is a step forward for Rouhani in his efforts to reduce the security forces’ footprint. The Revolutionary Guard Corps, a powerful military organization, controls local businesses in industries ranging from energy and telecommunications to infrastructure.

“By consolidating these banks, it becomes easier for the central bank to enforce regulations on investment activities and financial transparency,” said Esfandyar Batmanghelidj, founder of Bourse & Bazaar, a news website that tracks Iran’s economy. It’s “a positive development that reflects the serious debate taking place in Iran about the perils of mixing money and politics.”

The central bank has also been calling for a number of lenders to merge with healthier ones to clean up the industry and help tackle a high ratio of bad loans.

Iran is making less headway on Rouhani’s efforts to implement legislation to counter terrorism funding and money laundering.

The measures are urgently needed to keep Iran off the Paris-based Financial Action Task Force’s blacklist. The European Union said it expected Iran to follow through on its plans when the bloc launched the Instex special investment vehicle. Instex is a new payments arrangement that the U.K., France and Germany opened on Jan. 31 to help continue trade with Iran without running afoul of U.S. sanctions.

Hardliners in Iran have been mounting a media campaign against the FATF measures, likening them to a capitulation to the West similar to the 2015 nuclear agreement.

Nuclear Deal

Rouhani championed Iran’s negotiations with world powers that culminated in the deal, which lifted some sanctions on the Islamic Republic in return for restrictions on its enrichment program. Domestic critics warned at the time that no good could come from engagement with the U.S., a view they say was vindicated by President Donald Trump’s decision to withdraw from the accord and reimpose sanctions last year.

On Saturday the Discernment and Expediency Council -- a top consultative body that resolves political disputes and is appointed by Supreme Leader Ayatollah Ali Khamenei -- said it had failed, for a fourth time, to reach an agreement over whether to approve the FATF legislation. Rouhani is himself a member of the council but wasn’t present at the meeting.

The council said there’s no plan to discuss the issue again until after the end of the Persian new year break in early April, keeping the law in limbo for at least another month, according to the state-run Islamic Republic News Agency.

‘10 or 20 People’

Rouhani has rebuked the council and other unelected legal bodies for holding back policy by monopolizing the decision-making process. According to the president, Khamenei has said repeatedly that he doesn’t oppose the legislation.

“The country can’t be in the hands of 10 or 20 people and then claim that every decision they make is ours,” Rouhani said in a speech last week. “The decision maker in this country is either the government, parliament or the supreme leader.”

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