Financial reporting by Iranian banks

Our 2016 survey analyses the financial reporting procedures of nine Iranian banks, where total assets are in excess of $1billion (IRR equivalent) and the annual report is prepared in English. Our findings show that there is a willingness by some banks to adopt greater transparency in their annual report but this is at an early stage with some banks more advanced than others.

In January 2016 the International Atomic Energy Agency released its report confirming that Islamic republic of Iran (Iran) has completed the necessary preparatory steps to start the implementation of the Joint Comprehensive Plan of Action1. This constituted a significant milestone on the path to a normalisation of relationships between Iran and the international community. As a result a significant number of sanctions have been lifted triggering a new phase of doing business with Iran.

We surveyed the following banks:

Bank of Industry and Mine
Export Development Bank of Iran (EDBI)
Karafarin Bank (Entrepreneurship Bank )
Maskan Bank
Middle East Bank
Bank Pasargad
Saman Bank
Sarmaye Bank
Tejarat Bank

For our full details of the analyses, please view the full report, downloadable below. The following is a brief summary of the chapters contained within the report.

Challenges for the regulators and banks

Years of sanctions, and consequently the isolation of the Iranian banks, have left deep scars in the banking sector. Iranian banks will need to re-establish links with the international banking community. In order to achieve this, there are a wide range of challenges on which regulators, banking supervisors and banks must work together in order to achieve a sustainable banking sector trusted by the international community.

Scope of this review

Financial statements are a significant element of communication with regulators and supervisors, shareholders, customers, investors, members of staff and correspondents. Whilst our analysis is not a representation of the entire Iranian banking system, it includes both state-owned speciality banks as well as private banks.

Format and content of annual reports

The length of the annual reports from the banks in our survey varies considerably. For the nine banks in our sample that publish a full annual report, the length ranged from 43 to 122 pages with the average at 82. The length of the financial statements varied from 12 to 86 pages.

Accounting framework

The accounting convention applied across the banks is historic cost accounting with limited use of current market/fair values. The most notable exceptions to cost accounting are the revaluation of land and buildings as well as goodwill (where this is relevant). For those banks that provided disclosures, the policies adopted were generally boiler-plate descriptions principally covering tangible fixed assets, intangible assets, investments, revenue recognition and staff termination.

Communicating performance

Many of the banks provided a description of their strategic objectives and plans. The specialised state-owned banks generally provide a good overview of development projects undertaken in the year, whereas the private banks provide more commercially driven information. Few banks provide a comprehensive analysis of financial performance in the year.

Risk management and governance

Of the surveyed banks, seven included a section in the annual report on risk management; however, most of these provided only a high level overview of risk management and a brief summary of risks.

1. JCPOA: as agreed between the P5+1, the European Union and Iran on 14 July 2015.