Iran sanctions shadow falls on smaller German banks

Pedestrians stand outside the Grand Bazaar outside a Bank Melli Iran Inc. bank branch in Tehran. (Getty)
Updated 27 May 2018
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Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.

FASTFACTS


Germany’s GDP growth outlook hit by euro crisis, US-EU trade conflict

Updated 32 sec ago
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Germany’s GDP growth outlook hit by euro crisis, US-EU trade conflict

ERLIN: Germany’s Ifo institute on Tuesday cut its forecasts for growth in Europe’s biggest economy this year and next, citing a weak start to the year and increased global risks.
Ifo said it expected the German economy to grow by 1.8 percent this year and in 2019, a big revision downwards from previous forecasts of 2.6 percent and 2.1 percent respectively.
“The economy developed significantly more weakly than anticipated in the first few months of the year,” Ifo economist Timo Wollmershaeuser said. “The global economic risks have risen significantly,” he added.
Ifo said the economic upswing in Germany should continue but at a slower pace, echoing an assessment by the Bundesbank last week.
In addition to weak industrial activity and exports in the first four months of the year, a trade dispute between the United States and the European Union is clouding the outlook for the German economy. US President Donald Trump is threatening to impose hefty tariffs on car imports from European allies in addition to unilateral metals duties.
The Bundesbank said on Monday that German growth should rebound in the second quarter thanks to higher state spending, a humming construction sector and strong private consumption.
But it warned that trade and political concerns have made the outlook for the economy more uncertain and revised down its own growth projections.
A new Italian coalition government that comprises anti-establishment parties with a brief to shake up EU institutions has also unnerved German companies.
“The downside risks for the German economy have significantly risen,” said Ifo’s Wollmershaeuser. “Germany’s economic advantages are far outweighed by two risks — euro crisis 2.0 through Italy and a trade war.”
As well as the US-EU trade dispute, German business leaders are worried that a trade confrontation between the United States and China could harm exporters that rely on the world’s two largest economies for growth.
China has raised tariffs on $50 billion in US goods, responding to similar measures by Trump, who has also threatened a 10-percent tariff on $200 billion of Chinese goods.
“The likelihood that we have a trade war that also affects Germany is higher now than it was in spring,” said Wollmershaeuser.