The downfall of Iranian banks late last year has led to an economic upheaval, igniting widespread protests across numerous cities in just the past couple of weeks, which poses a significant threat to the Islamic Republic’s authority.
Ayande Bank, managed by a close ally of the regime, collapsed with reported losses nearing $5 billion, primarily due to a mountain of non-performing loans. This comes from sources familiar with the situation.
The bank was known for offering the highest interest rates in Iran, attracting millions of depositors. However, it heavily relied on government-printed money, contributing to inflation.
Interestingly, Ayande Bank also financed many projects for the founders’ own companies, which raised eyebrows. The head of banking supervision at the Central Bank labeled it a “pyramid scheme” last year.
Among its notable investments was the Mall of Iran, a vast structure almost twice the size of the Pentagon, featuring an IMAX, library, swimming pool, and more, all of which opened in 2018. Quite the ambitious project, right?
The luxurious mall was launched as President Massoud Pezeshkian suggested relocating the capital closer to the Indian Ocean coast while the country faced soaring inflation, plummeting wages, and worsening water and energy crises.
“This highlights issues of corruption and injustice, making many everyday Iranians feel that the system is biased against them, or at least favors a small elite,” commented Esfandiyar Batmanghelij, CEO of an economic think tank.
The Iranian government split the troubled bank into Meri Bank, the largest state-owned financial entity, hastily printing money to mask the problem—but it seems the damage was already done. Reports indicate that at least five other banks in Iran are on the edge of collapse.
The banking crisis unfolded alongside Israel’s 12-day conflict with the U.S. in June. Then, in November, threats from Israel and the U.S. to attack Iran if it pursued nuclear development further tarnished the country’s standing.
Sanctions from the U.S. and Europe have redirected some of Iran’s oil revenues, while the U.S. has tightened its grip on money laundering coming from Iraq.
The rial’s value dropped so quickly that shop owners struggled to set prices on their goods, and importers faced substantial losses before selling. As the economic situation deteriorated, even merchants, who typically avoid protests, took to the streets in Tehran.
Despite internet blackouts and a government crackdown, thousands rallied in numerous cities, with reports indicating at least 2,500 fatalities among protesters.
Days following Ayande Bank’s failure, the UK sanctioned its founder, Ali Ansari, described as a “corrupt Iranian banker.” Ansari, who owns a multimillion-dollar mansion in London, was said to have financed the Islamic Revolutionary Guard Corps.
In a statement issued in October, Ansari attributed the bank’s downfall to “decisions and policies beyond the bank’s control.”
The head of Banking Supervision previously described Ayande as a “pyramid scheme.” For quite a while, both conservative and reformist politicians have pushed for closures of problematic banks, warning that reliance on newly printed money would exacerbate inflation.
In October, Iranian Attorney General Gholamhossein Mohseni Ejei even threatened legal action against the central bank if it didn’t act against Ayande, prompting immediate closures the next day.
While Iranians struggle to access basic food items, the government has started cutting public programs like bread subsidies and selling imported gasoline at market prices. Attempts to pacify protests with cash handouts of around 10 million rials per person, which is roughly $7, have failed.
