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EghtesadOnline: Now that the minimum capital requirement for offshore banks has been raised, opinions are growing that promoting healthy competition among domestic banks in the free zones and attracting foreign banks there should be the next move for promoting offshore banking.

The Money and Credit Council – a decision-making body–raised the minimum capital requirement for the establishment of banks in free trade zones to €150 million– six times higher than the previous norm.
The MCC said the new standard were set to help ensure capital cushions for the offshore lenders against possible risks and also to enhance their operations and future growth.
Bahaeddin Hussieni Hashemi, a banking analyst, welcomed the new norms saying that the higher capital cushions would considerably reduce the risk of investment in offshore banking.
“The Central Bank of Iran is not supervising the operation of offshore banks as expected. Higher capital requirement norms would help the CBI and investors make sure offshore banks meet their commitments,” quoted him as saying.
Acording to Financial Tribune, noting that the central bank is studying applications for establishment of banks in the FTZs, he said, “Launching powerful banks in the country would help augment the country’s creditworthiness and help it regain the investors’ trust.
”The CBI is currently reviewing 18 applications for the operation of private banks in the free areas. The applications have been put forward by Iranian investors. The CBI has approved some of the proposals as they met its capital requirement standards.”
It is reported that the first offshore bank is due to open in Kish Free Trade Zone.
Talks have also been held with the UAE for opening banks in Aras Free Trade-Industrial Zone in East Azarbaijan Province. Chinese and Russian banks have also shown interest in opening offices in the Qeshm free areas in the Persian Gulf.
The capital level of banks is all the more important when it comes to attracting investors, since according to regulations each investor is allowed to deposit approximately up to 30% of the bank’s capital,” he added.
According to MCC’s new ruling, only registered banks are allowed to conduct international banking operations, barring [non-bank] financial institutions from international operations.

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Mohammad Lahouti, head of Iran Export Confederation, calls for implementing more reforms in the free trade zones saying, “FTZs have not fulfilled their obligations.”
“Such zones were supposed to promote domestic production and exports; however, they turned out to be hubs for import. Domestic banks also followed in the footprints of their mainland peers by refusing to lend to businesses,” the website of Tehran Chamber of Commerce, Industries and Mining quoted him as saying.
“Even the presence of foreign banks in the past did not improve the condition,” he lamented.
Standard Charters, Futures Bank and Eihbank had branches in Kish Island before sanctions were tightened in 2012.
“We need to attract foreign banks and at the same time promote healthy competition in the sector,” he said, “By doing so, we can help our banks to update and meet international standards.”
As per law, foreigners are allowed to own up to 40% of bank shares in the mainland while in the free zones they can open banks with 100% equity.

minimum capital requirement Offshore Banking free zones