UAE banks stand to benefit from Iran’s rebound

Many multinationals are likely to anchor operations through Dubai

Dubai: Lifting of economic sanctions on Iran could be a boon for the UAE banks that have close ties with businesses in Iran according to the Institute of International Finance (IIF).

“The UAE and Lebanon would benefit from the economic rebound in Iran. Given Lebanon’s financial skills and regional ties, it could play an important role in the future financing and channelling of investment needed by the Iranian economy. More foreign companies could be based in Dubai to do business in Iran,” said Garbis Iradian, Chief Economist, Africa/Middle East of Institute of International Finance (IIF).

The UAE’s exports to Iran (mostly re-exports) amounted to $33 billion in 2014, about one-third of Iran’s total imports. While most multinationals that intend to do business with Iran are likely use Dubai as their regional hub for operations, the well-developed financial services infrastructure in the UAE is expected to boost the fund flows to and from Iran.

Banks domiciled in countries with close ties and trade links to Iran, such as the UAE and Lebanon, but potentially also Western, Chinese and Indian banks, would likely be attracted to Iran’s diversified economy and significant trade flows, rating agency Moody’s said in a recent report.

“We anticipate increased longer-term business opportunities for Dubai banks if the Iranian economy opens up, particularly given the private sector nature of the Dubai economy and its strengths as a logistics hub,” said Khalid Howladar — senior credit officer, Moody’s.

Although banking sector in Iran offer opportunities, physical expansion into Iran would pose greater risks, according to Moody’s analysts. The rating agency said that the operating and geopolitical environment is risky and would expose foreign banks to asset quality issues inherent to emerging economies undergoing fast transformation, and would require prudent risk control and oversight.

While a number of banks, financial institutions and private equity players have been preparing for months to participate in Iran opportunities, many said they are closely watching the recent geopolitical developments.

“The UAE has a long history of trade relations with Iran. We expect the recent disputes will be eventually resolved and these are unlikely to stand in the way of long term economic ties,” said the CEO of a Dubai based bank.

By Gulf News