Tehran, Iran ? Authorities have merged one of Iran?s largest private lenders into the country?s biggest state-run bank in a move that highlights a deeply troubled economy and will further squeeze average citizens as pressure from the West grows.

The central bank on Thursday announced that Ayandeh Bank, privately owned by one of Iran?s wealthiest families, would be dissolved and merged with Bank Melli, the government-run national bank, and that Ayandeh branches across the country would be transformed into Bank Melli branches by Sunday.

Customers were told their accounts and deposits are safe, and all contracts remain under the same conditions. But after years of murky operations and central bank interventions, Ayandeh had racked up losses on a scale that impacted Iran?s macroeconomics, so its bailout will not leave Iranians unscathed.

How did we get here?

Ayandeh began amid a crisis in the 2010s caused by corruption and lack of regulatory supervision over the ailing banking system, experts told Al Jazeera, at a time when Iran was reeling from United Nations sanctions over its nuclear programme.

That was when hundreds of unlicensed financial institutions linked with parastatal, military, or religious foundations mushroomed across the country.

They offered exorbitant interest rates to attract cash away from the banks, and did not repay the deposits in many instances, leaving thousands of investors unable to withdraw their deposits for years.

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The government and the central bank finally took over and completed the process of outlawing the unlicensed institutions by 2017, a year after they managed to take control of over 25 percent of the country?s entire money supply.

The institutions had little in their coffers after being taken over due to loans to insiders and money sunk into property.

Much of the skyrocketing debt accrued by the institutions had to be recuperated by printing money, which meant rising inflation and increased costs of living for average Iranians.

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Ayandeh was established in 2013 via the merger of Tat Bank with two state-linked financial entities, the Salehin Credit Institution and Aatee Credit Institution.

Ali Ansari, the 63-year-old business tycoon whose family is believed to be among the wealthiest in Iran, was the founder of both Ayandeh and Tat, and owned a majority of the shares in both financial institutions along with family members and close associates.

Ansari has been behind gigantic real estate projects, owns ventures in steel, telecommunications and hospitality, and sat on the board of Tehran?s Esteghlal football club, among other business and influence-growing activities.

Just how big are the numbers?

The bank has been the subject of state attention for years.

Two years ago, as Ayandeh racked up losses and more money had to be printed, the central bank revoked shareholder voting rights on more than 60 percent of the company?s stock and gave it to the Ministry of Economic Affairs and Finance.

But that did not help, and the bank kept borrowing from the central bank and the government to stay afloat.

By the time of Ayandeh?s forced dissolution last week, the central bank said the lender had an eyewatering 5 quadrillion rials ($4.67bn using the current open market exchange rate) in debt, and held 2.5 quadrillion rials ($2.34bn) in people?s deposits.

Ayandeh was legally allowed to dole out up to 200 trillion rials ($187m) in loans based on its proven capital, but the central bank said the lender paid about 10 times that amount to individuals and entities over the years.

Up to 1.3 quadrillion rials ($1.21bn) was given to a small number of individuals and firms directly linked with Ayandeh and its internal projects, according to the central bank. Authorities have refused to reveal the identities of the people and entities who took the money.

Iranians online have also been widely reacting to news of Ayandeh?s bankruptcy. Private sector businessman Pedram Soltani was among those who called for accountability.

Translation: Publish the list of overdue and doubtful-to-return loans and toxic assets of Ayandeh Bank! People must know whose costs have been imposed on their pockets.

Most of the loans paid by Ayandeh have been overdue for a year or longer and are considered unlikely to be recovered.

Bijan Khajehpour, an economist and a managing partner at Eurasian Nexus Partners consulting firm, pointed out that all Iranian banks have a large volume of non-performing loans (NPL) in their books.

?These NPLs are a consequence of loans having been extended to customers without the due process of assessing their collateral based on corrupt transactions between networks of power,? he told Al Jazeera.

?It says a lot about the extent of corruption and how political patronage undermines business activities.?

Ayandeh was singlehandedly responsible for an incredible 42 percent of all overdrafts made by banks from the central bank, and 41 percent of all capital imbalance in the beleaguered Iranian banking sector, according to the central bank.

It had a capital adequacy ratio (CAR) of minus 600 percent, whereas a bank must have a bare minimum ratio of 8 percent under Basel II international standards that are also accepted by Iran.

Its elimination raises the average CAR of Iran?s banking industry from 1.36 percent to about 5 percent.

Ayandeh is not an isolated case; it simply underscores the systemic woes of Iran?s globally isolated financial sector.

At least five other banks, including state-run Bank Sepah, which in 2020 had five other sinking banks merged into it in the largest banking consolidation in Iran?s history, are flagged by the central bank as being highly imbalanced.

Corruption, political infighting

The announcement on Ayandeh?s dissolution came one day after Iran?s judiciary chief, ultraconservative cleric Gholamhossein Mohseni-Ejei, directly threatened Central Bank of Iran Governor Mohammad-Reza Farzin with legal action.

?Mr Farzin, you have sufficient legal mandate to make any decision about Ayandeh Bank. Do your legal duty or else we will come in and increase costs for you,? he wrote in a post on X.

Ejei said that despite the central bank?s involvement in running Ayandeh for seven years ? appointing and dismissing the board of directors and the CEO ? the bank?s accumulated losses increased by up to tenfold in that time.

No arrests or indictments, or any other form of legal reproach, have been announced by the judiciary despite the billions of dollars in losses.

Along with the judiciary, hardline politicians with the Paydari Front ? who have been entrenching power in the parliament, the Islamic Revolutionary Guard Corps (IRGC), and state media ? have consistently been the most vocal critics of the private bank.

In addition to scoring points for appearing to be anti-corruption, the hardliners opposed the bank to discredit political and economic rivals in the technocratic camp affiliated with reformists who are in favour of liberalising the Iranian economy and opening it up to the West.

Parliament speaker and former IRGC commander Mohammad Bagher Ghalibaf hailed Ayandeh?s dissolution as ?a great success for the country?s decision-making and governance system? in a statement on Saturday.

How Iranians will end up paying the price

Ayandeh?s downfall also puts its assets, many of them in the real estate sector, under full state control, but they will be difficult and time-consuming to sell.

The central bank has emphasised that somehow, all of the assets but ?none of the imbalances? of Ayandeh will be transferred to Bank Melli and to compensate for some of the losses, Ayandeh?s assets will be managed and sold, wherever possible, by Melli.

The crown jewel of the assets is Iran Mall, the largest mall in the world in terms of total constructed floor area, located in western Tehran.

The Deposit Guarantee Fund, which insures bank deposits up to a ceiling under the central bank?s auspices, will have to foot a fraction of the bill as well.

The central bank says Ayandeh?s top shareholders will have to account for some of the money, but it remains unclear how much, by what time and exactly in what form they will have to pay.

However, due to the large volume of accumulated losses, Iranian media estimate that in an optimistic scenario, the state and Bank Melli will have to account for about two-thirds of the debt.

Part of that will have to be done through printing more money, which itself has long been identified as a main driver of inflation in Iran, currently at over 40 percent amid reinstated UN sanctions and consistently among the highest in the world over decades.

In simple terms, tens of millions of Iranians will pay the price over the coming months and years in the form of decreased purchasing power.

Household items have already seen another major price jump in the aftermath of the 12-day war with Israel and the US in June, with food items like chicken, red meat, eggs and peas experiencing the sharpest increases.

For his part, Ayandeh?s Ansari said in a statement on Friday that the bankruptcy came ?as a result of decisions and policies that were made outside the bank?s control?, adding that the bank has left behind ?valuable legacies and lasting assets?.

Ansari added ?my conscience is at ease and my heart is assured?, and said he had devoted all his strength to service and to the public good. (Aljazeera)

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