Iran's banks may be about to be formally allowed back into the global financial system, but analysts suggest a return to normal letter of credit (L/C) business for Iranian financial institutions may be a more distant prospect.

Sanctions that have marginalised Iran's banks for several years may start to be lifted soon if Tehran and world powers reach a deal to curb the Islamic republic's nuclear programme by a 30 June deadline.

If reached, the deal is expected to precipitate a surge of trade and investment into Iran.

Upside potential

"There is huge upside for Iranian banks - their top line revenue has always been trade finance and L/Cs," according to managing director of Tehran-based investment firm Turquoise Partners, Ramin Rabii.

Iranian banks - particularly in the Gulf and Europe - have substantial operations that have largely been mothballed during several years of sanctions.

Poor condition

But Iranian banks are not in good shape to exploit trade and investment opportunities while international banks may still prove reluctant to write L/C business with Iran's banks for fear of meeting increasingly tough compliance requirements.

International banks are reportedly most cautious about transacting with state-tied entities, and a large part of the banking system is comprised of three state-owned commercial banks and five specialised government banks.

Several of the 19 banks classified as private have close ties to state institutions and operate under their influence.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.