Page 20 - Iran OUTLOOK 2025

• 6.7 Banking sector
In 2024, Iran's banking sector confronted significant structural challenges that affected its operational stability and lending capacity. The sector's financial imbalance became particularly pronounced, stemming from increased mandatory lending requirements and the government's growing reliance on banking resources to address budget shortfalls. This strain manifested in the capital adequacy ratio, which fell to 2.3% by September 2024 – a modest improvement from the 0.5% low following sanctions but still substantially below the 5.6% pre-sanctions level and international banking standards.
The impact of mandatory lending requirements created additional pressure on bank resources, particularly affecting their ability to support long-term development projects. This was evident in the lending portfolio distribution, where working capital loans dominated, whilst development loans constituted less than 22% of total lending. This imbalance highlighted the banking sector's diminished capacity to fund strategic economic growth initiatives.
The debate over banks' role in business ventures emerged as a significant policy discussion in 2024. Some officials advocated for banks to establish and invest in production and industrial projects, proposing a model where banks would divest upon project completion to maintain liquidity and prevent asset accumulation. This approach aimed to balance banks' developmental role with their core financial intermediation functions.
The sector's challenges underscored the need for comprehensive structural reforms. Key areas requiring attention included bank capital strengthening, reducing government financial intervention, reforming mandatory lending policies and enhancing credit assessment systems. These measures were identified as crucial steps toward improving lending efficiency and alleviating pressure on the productive sectors of the economy.
• 6.8 Automotive
In 2024, Iran's automotive sector demonstrated notable growth whilst grappling with structural challenges and international dynamics. Overall production reached 1.188mn vehicles, marking a 12% increase that positioned Iran as the world's 16th largest automaker, surpassing established manufacturing countries such as the UK, Italy and Russia.
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