Iran takes over Ayandah Bank to save it from collapse economy

Iran took over the private Aindah Bank after it was on the verge of collapse due to years of accumulated debt and mismanagement, according to the British Financial Times.

The central bank reassured 7.6 million depositors at Aindeh Bank that their money is still safe, seeking to calm the financial system that is already suffering from severe pressure, and Aindeh was merged into the state-owned Bank Melli Iran (BMI).

Founded in 2012 by one of Iran’s wealthiest families, Ayandeh Bank offered the highest interest rates on the market, attracting huge deposits that it could only service by borrowing heavily from the central bank, which printed money to prevent the collapse of a major financial institution.

The approach stoked inflation

Analysts say the central bank’s approach fueled Iran’s chronic inflation, ultimately failed to keep Aindeh afloat, and took over using a mechanism designed to manage bank failure without disrupting the broader financial system.

Aindeh owed the central bank an estimated 5,000 trillion riyals ($4.6 billion), while customers defaulted on more than 97% of Aindeh’s total loans, according to the semi-official Tasnim news agency.

Bank Melli Iran manages the liquid assets and liabilities of Aindeh. The value of Aindeh’s deposits amounted to 2,500 trillion riyals ($2.3 billion) and its registered capital is only 16 trillion riyals ($14.8 million).

Bank Melli pledged to keep employees in their positions and pay the current interest to depositors until their contracts mature.

The newspaper quoted an unnamed Tehran-based banking analyst as saying that “the central bank’s intervention is a good step in principle,” but he said that balance sheet problems and mismanagement were a major concern elsewhere in the sector.

Aindeh and its founders, the influential Ansari family, have long been accused by politicians and analysts of directing depositors’ money into speculative projects and subsidiaries, and according to Tasnim, between 40 and 44% of Aindeh’s loans went to its subsidiaries.

Aayendah founder Ali Ansari denied the allegations last Friday, saying: “The truth will come out eventually,” but he did not want to cause any “fuss” at the moment.

External obstacles

He insisted that the bank prospered, but faced obstacles from outside parties, saying that Ayinde was “a symbol of intelligent efforts manifested in huge projects.”

The bank’s largest project was the construction of Iran Mall in Tehran, one of the largest shopping complexes in the Middle East, and the value of the bank’s non-performing loans amounts to at least 1,400 trillion riyals ($1.3 billion), according to the central bank.

Analysts say many of these loans were issued either without collateral or against overvalued assets.

The Iranian financial sector has long suffered from low capital requirements and lax regulation, which, according to analysts, has led to the accumulation of bad debts at banks and imbalances in balance sheets, and Iran’s isolation from the global banking network under US sanctions has exacerbated the problem.

Both hard-line politicians and reformists have been pushing for the closure of Bank Aindé for years, arguing that the central bank’s support for it was exacerbating inflation and weakening the rial.

In an attempt to survive, Aindah’s board of directors changed its management team on October 18 and offered the central bank a capital increase of 2,000 trillion riyals ($1.8 billion).

The next day, President Masoud Pezeshkian met with Judiciary Chief Gholam Hossein Mohseni Ejei and Parliament Speaker Mohammad Bagher Qalibaf, who rejected proposals to recapitalize or restructure the bank, according to Iranian bankers.

Mohseni Ejei warned publicly last Tuesday that the judiciary would intervene if the Central Bank did not take any action, and Central Bank Governor Mohammad Reza Farzin announced the takeover last Thursday.

shock

One of the bank’s newly appointed directors said: “The announcement came as a shock. We all expected the central bank to accept our offer to increase the bank’s capital.”

Ayende’s illiquid assets, including large real estate holdings, have been handed over to a government body that insures bank deposits, to be sold over the next two or three years, and the proceeds will be used to settle the bank’s debts with the central bank and other creditors.

The Central Bank has previously intervened in similar cases, and analysts say that the state-owned Bank of Sepah, which several years ago was forced to absorb 3 troubled banks, is still suffering from its debts.

Farshad Mohammadpour, deputy head of the Central Bank for Supervision, explained to local media that “our red line is not to transfer a single riyal from the financial imbalance at Aindeh Bank to BMI Bank,” and acknowledged that paying Aindeh’s obligations will be a challenge: “If selling assets like Iran Mall was easy, the bank would not have reached this stage.”