Bad loans and cronyism: How Ayandeh Bank failure triggers protest in Iran

The ongoing protests in Iran that now pose the most significant threat to the regime since the founding of the Islamic Republic did not just erupt from political dissent or youthful demands for freedom, it started with the collapse of a bank.

Late last year, Ayandeh Bank collapsed under the weight of nearly $5 billion in bad loans. The lender, controlled by regime insiders, was absorbed into a state-owned bank as the government printed money to plug the hole. The move masked the crisis, but didn’t fix it.

The collapse exposed a financial system buckling under years of sanctions, reckless lending, and dependence on inflationary money-printing, leaving it dangerously insolvent and illiquid.

Crisis amid geopolitical strain

The timing could not have been worse. Iran was still reeling from a 12-day war with Israel and the US in June. Its hardline stance on the nuclear programme kept sanctions relief out of reach. By November, Israel and Washington were warning of fresh strikes if Tehran revived its missile or nuclear ambitions.

The rial plunged into a new downward spiral. US enforcement actions cut Iran off from dollar flows from Iraq and slashed hard currency earnings from oil. Overseas reserves were frozen under sanctions.

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Ayandeh Bank’s Fall

Ayandeh Bank was founded in 2013 by Ali Ansari, a wealthy businessman close to former conservative President Mahmoud Ahmadinejad. The UK sanctioned Ansari last year, calling him a corrupt Iranian banker who financed the elite Revolutionary Guard Corps. Ansari blamed the failure on decisions beyond his control.

Ayandeh offered the highest interest rates in Iran, attracting millions of depositors. It borrowed heavily from the central bank, which printed money to keep it afloat. Most loans turned bad.

A Systemic Banking Meltdown

The bank also sat at the centre of a wider financial crisis that deepened after US sanctions were reimposed in 2018.

Which led other Iranian banks to the central bank’s emergency liquidity facility, borrowing at steep interest rates without posting collateral. Much of that money was squandered, funneled into speculative ventures and poorly managed projects.

And the central bank kept printing money to sustain these loans, which created an inflationary spiral and eroded the currency’s value.