Industrial and Mining Development Bank of Iran (4)

Narrated by Ali Zirak Nejad

Mehdi Amani Yamin
Translated by Natalie Haghverdian


* Which international banks would allocated facilities to Industrial and Mining Development Bank of Iran's?

International banks such as Deutsche Bank, Société Générale S.A, Banks of Japan, American Banks such as Bank of America,


* This means that after the rise in oil price made it possible to supply the foreign currency supply of Industrial Development Bank?

Yes! It was after the rise in oil price; we couldn’t apply to international banks and we started working on banks and institutions.


*There are oral reports that after the rise in oil price, currency supply was interrupted.

No! it wasn’t. I was in charge of management of this department. There were two departments for contract. We sent a telex and had to code it. I had the codes for both departments. I had my tenure as manager of treasury and financial manager of the bank. For instance, if I felt that USD 10 million is needed somewhere I would send a telex to the bank requesting the amount and it was done. The relevant bank would announce the rate and we would accept and place the order for action. It was based on the high credibility of Industrial and Mining Development Bank of Iran.


*Can we say that the credibility of bank manager was in play as well?

World Bank and Group of World Bank are not the same. The latter included IBRD, IFC, IDA, ICSID which are all involved in development. Other banks joined the group later and they are credible. Once an institution is approved by this group all other international banks and institutions easily allocate funds. Late Kheradjou and his connections were also very effective.


*Do you remember international banks and institutions that allocated USD 960 million to your bank?

Deutsche Bank, Société Générale S.A, Bank of Tokyo, Industrial Bank of Japan, Barclays Bank (which was one of our shareholders), Bank of Mexico, Bank of America, Chase Manhattan Bank and other high ranking banks. There were other banks such as Bank Brussels Lambert in Belgium and United Bank in New York. They not only allocated facilities but would request interns to be trained free. These were all short term facilities. We had long term projects as well.

There is a principle in development banks: it is not possible to finance long term projects with short term money; it is due to the fact that the reimbursement for short term financial sources allocated is six months to a year however, industrial project take three years. Hence, we were searching for long term facilities. We published two public security bonds in Germany.


*When was it? Was it after the rise in oil price that you published those security bonds?

I think it was in 75, 76 and after the rise in oil price. We had Private Placement in London. We would sell them to the public. It is very important to note that a German citizen would buy the security bonds of an Iranian Bank; it indicates that there was trust. However, the private placements it Japan were only purchased by Banks. I mean, of one hundred million dollars private placements published, 10 or 15 banks owned them not the public. I can’t comment on security bonds in Europe but I certainly know about Japan since I was handling it. We were the first foreign bank to issue private placement in Japan with ten years credit. I was in 76; I remember the dates since I travelled to Japan to negotiate pricing. The payment was due in 1986. This was like a long term loan of which we would pay for short term loans we had taken. We had two credit lines offering the best rate which were Deutsche Bank, Société Générale S.A. Their rate was the best and the credit line allocated was USD 60 million; we would usually this credit line to the fullest. However they were short term and we had to clear it which was usually done by private placement or clearance of previous placements.

The reason for private placement was that the interest rate of such placements was more than dollars. We couldn’t absorb one hundred dollars at once since the projects were developing gradually and under supervision hence we would fill our sources with credits and once it would come to the ceiling of the credit we would apply for a long term loan to clear them.


We had surplus Iranian Rial credits as well; we didn’t have savings accounts or branches; I mean there was no transaction hall and it was moved from Industrial Credit Bank after the Revolution to our bank but we had Rial credit line in National and Central Banks; we were not short of Rial resources. Moreover, Planning Organization and Ministry of Industries had budget lines for us and we had the authority to allocate such credits. The bank was never short of resources and international credits were in place. After the Revolution, the Rial credits were cut by Ministry of Industries and Planning Organization and the bank was severely short of Rial credits. We had syndicate loans. Couple of banks would form a syndicate and would consider USD 50 million for us for a term of 3 to 5 years; there were American banks involved in syndicate loans. When the embassy of America was taken over we had no choice but to clear all such loans through advance payment.


*Did you reimburse these syndicate loans after the statement by Algeria?

 Yes! Once the Algerian statement was signed one of its conditions was that any syndicate loan allocated to Iran where an American bank is involved shall be reimbursed immediately.


*What was the mechanism of currency supply after the revolution? Considering that there was the merger of development – industrial banks.

Yes! After that we never received loans, since the channels of reimbursement were closed. However, we received loans from European banks and we were actively working with them even after 78. We were trading with Medio Banka Italia and Deutsche Bank, Société Générale S.A. We pursued our activities with them with no problems but they wouldn’t allocate many facilities but we had brokerage interactions. They wouldn’t allocate new resources but we weren’t under embargo. It was simple interaction between two banks with no resource allocation.

Of the initiatives of the Development and Mining Bank I can state Hedging. This type of interaction indicates that for instance a loan in dollars is taken with the forecast of dollar increase rate in three years. The bank which takes the loan signs an agreement with a domestic bank to allocate dollars at the time of reimbursement with the exchange rate of the loan date. Then many Iranians were not aware of such mechanisms. Today, such transactions occur in other countries but not in Iran.

Approach and thoughts of later Kheradjou would keep us couple of steps ahead of other credit institutions. He was planning to sell the bank’s shares in New York Stock Market. Washington Securities and Mr. Rosen who was manager in charge of this institution were working with us. He traveled to Iran and guided us on provision of financial statements to be able to obtain quotations from New York stock market and submit our shares to be traded there. This was Kheradjou’s idea which was never realized. Our auditor was Coopers and Lybrand in Tehran which was a credible international auditing institution.

I want to say that we were really a pioneering bank which would patiently pursue its activities. These were features appreciated by those interested in banking activities. They wanted to work in such a bank which would update itself with the latest banking mechanisms.

From 76 to 78 I was in financial department. Of course there was no mechanism in other departments that I wasn’t aware of. I was fully aware of all means and mechanisms. However, now there have been many developments in the world and I don’t know anything about them. When I was appointed as the representative of Ministry of Finance in the World Bank I could see sophisticated currency and Swap interactions. There was an Iranian called Ardalan in the financial department of the World Bank who was in charge of such sophisticated interactions; but he was anti-revolution. It would be good if he was a bit moderate so that I could approach him to learn such complex estimations but he wasn’t.

I used to carry the sign of the Islamic Republic on my collar so that everyone would know that I’m Iranian and I was in touch with many Iranians at managerial levels. But I couldn’t approach this particular person since I didn’t want any insult to Islamic Republic so I couldn’t learn anything from him.

Back then, Kheradjou would participate in all annual meetings of the World Bank and IFM and International Monetary Fund, where all bankers of the world would get together and he maintained good relations with them.


*How did you collect those private placements that you had sold in Europe and Japan after the Revolution? Were there any challenges?

We supplied currency. We didn’t face problems since all were printed by the approval of the Central Bank. We had the permit. Once foreign borrowing is to take place, you have to provide the approvals of the board of directors and relevant translations. Many documents are required of which, one is the permit of the Central Bank. Since we had the permit from Central Bank, they were committed to supply relevant currency. We had found an agent there which made it possible for us to collect the private placements in a price lower than the announced rate. I mean that if a placement was to be reimbursed with IRR 100 we collected them by paying IRR 80 to 85. It wasn’t the case with Japan since banks were in place and we paid the actual amount.

In industry establishment (I wasn’t involved but kept myself updated and made the payments) I shall state that the Industry and Mine Development Bank established the modern industry in the country and then there were Industrial Credit Bank and Development and Investment Banks who shall take the credit that were all merged after the Revolution and formed Industry and Mines Bank. Investment Development Bank was established later. The first bank to pursue such activities was Industrial Credit Bank. However, they didn’t have major projects. Industrial Development Bank usually pursued major projects and sometimes when we faced credit limitations we would form syndicates with other banks and involve them in projects. It was sufficient that the project was approved by our bank.


*How much was the Rial Resources of Industrial Development Bank during last years of its activity?

I don’t know the figure. When Industrial Development Bank was established, the Central Bank had re-evaluated Crown Jewels. In 59, with a rate of six percent, 60 million Tomans were allocated to the banks. The second source was the capital of the bank which would enhance. The total sum of resources I can say that was 60 million Tomans which was a lot of money at the time allocated by Central Bank which was reimbursed.


*Was it interest free?

I think it wasn’t and there was six percent interest rate considered but I’m not sure; it might have been interest free. It was to reinforce the bank. Later, the National Bank and Industrial Credit Bank, allocated some facility portfolios to Industrial Development Bank to enhance its activities which was managed by Industrial Development Bank and the reimbursement was spent on allocating mutual loans. A total some of 70 or 80 percent; which depended on the available resources. 80 to 85 percent was the monetary resources of the bank and 15 percent was allocated from the resources of two other banks. We would submit relevant financial reports every six months to receive our fee and pay the margins to them which was another source of income. Then we had different forms of resources allocated by Ministry of Industry and Planning Organization. These were Rial sources for the bank which were received from other sources and allocated to applicants in the form of loans and the margins and interest were paid to the actual source. We also had credit lines in National and Central banks. We had credit line in Saderat[1] Bank as well. We didn’t have problems in Rial resources. There is currently a system within banks which is known as interbank; when I have surplus of resources, in order to maximize application of such resources, I allocate them to another bank dealing with resource deficit. Then it wasn’t called interbank but it was short term monetary market. Our bank and Saderat and Foreign Trade Bank were involved in such interactions. In such cases the bank had the credit with six and a half percent interest rate but we would allocate the money to banks in need with seven and a half percent interest rate for couple of days. All transactions were done through banks’ current account in Central Bank to avoid unnecessary risks. We were always far more active in facility allocation compared to other banks. We always had surplus to allocate. There was the issue of trust. For instance there were credible people in the banks and based on their request the facility was being allocated and reimbursement would take place on time along with the interest rate accordingly. This is how dealers work when you are dealing foreign currency with them and everything happens through telephone.


*How was Rial resource supply in Industry and Mines Bank after Revolution?

After revolution the foreign currency channels were closed. Our resources included the load reimbursement; however, since there were strikes the companies were in a lot of trouble. Then there was Preserving Industrial Development Act which was enacted and implemented by National Industries’ Organization under which many companies were taken over and the Industry Organization was not paying us and would make us shareholder in such companies to the rate of the loan the company owed. Source of facilities were Central Bank, National Bank and some Commercial Banks. We used to receive facilities from Mellat Bank during the last years. We had limitations in supplying Rial resources since our supply channel was blocked and our main source was budget based. Even the budget lines were not usually paid and we would mainly apply to Central Bank and commercial banks to receive credits.


*The receivable amounts from other companies sufficient for the bank to start new project?

No. It wasn’t much. Most of the industries were subject to Preservation and Development Act and they would refer to National Industries’ Organizations and were subjected to Articles A, B and C. The Organization would not allocate any facilities and for instance if the total amount that the company owed was twice the income of the company owners then it would be subject to Article B and pave the way for banks to become shareholders in those companies. Then they transferred the ownership of such companies but I’m not aware of the details. The main personnel of the Industries’ Organization constitute of our experts and our monitoring and evaluation methods were established there.


*The capacities of Industry and Mine Development Bank as you stated, is it based on prejudice?

What I explained about the bank is not based on prejudice. All are facts which might be a model for future. My time is over but I needed to say that our country has all these capacities and shall employ them. When I went to the World Bank, I saw that once a facility of for instance USD 50 or 100 million is allocated to development banks, those banks use such facilities to finance 10 to 15 projects. Upon allocation of funds then control and internal audit system gets involved to supervise the objectives fulfilled by such funds. Reports are drafted indicating such objectives. Once the reimbursement starts then the auditors of the World Bank evaluate to verify the achievements of relevant objectives. I was aware of such a system hence I collected the microchips and printed them. I studied them all carefully and sent them to Industry and Mines Bank. They studied the reports and praised Industrial Development Bank in realizing 98 percent of the objectives as initially stated in the reports. Late Kheradjou and all those who worked with him deserve to be appreciated for the good work they had done. They had top experts there.

I quote from Mr. Arami in one of the meetings of the Banks’ Council where they were looking for General Directors and Board of Directors where he said: Industrial and Mining Development Bank of Iran can supply managers for all banks. It means that the team working there was professional. Unfortunately our main challenge today is in management. A healthy and proper management can bring about success.


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