Industry Forecast - Gradual Progress On Reforms Ahead, Although Instability Risks Will Persist - APR 2018

BMI View: The Iranian banking sector will see stability improve over the years ahead, as the government provides capital injections and implements regulatory reform. Still-challenging political conditions will nevertheless weigh on the pace of progress, and risks of further instability resulting from an eventual collapse of the nuclear deal are set to persist.

Our core view is for the Iranian banking system to see gradual improvement to stability over the years ahead, as rising foreign investment and trade (facilitated by the maintenance of Iran's nuclear deal with the P5+1 powers) enables the government to provide much-needed capital injections. In the medium term, lower inflation (compared with levels seen in the sanctions era) and regulatory reform will also help the central bank gradually bring down interest rates and strengthen sector supervision. Eventually, these trends will help boost credit availability, facilitating economic activity. That said, risks to our outlook lie firmly to the downside, as still-high tensions with the US create significant potential for the nuclear deal to unravel ( see ' Nuclear Deal To Remain In Place For Now, ' January 15). Should this scenario play out, causing a re-imposition of international nuclear sanctions on Iran, then this would restrict the government's ability to support the banking sector, in turn raising the likelihood of severe instability.

Much-Needed Capital Injections To Commence

Robust Real Growth Broadly Positive For Banks
Iran - Inflation & Nominal Deposit & Loan Growth
e/f = BMI estimate/forecast. Source: National sources, BMI

This article is part of our Gulf coverage. To access this article subscribe now or sign up for free trial