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In a move that highlights Iran’s deeply troubled economy and puts pressure on average citizens further, authorities have merged one of Iran’s largest private lenders into the country’s largest state-run bank.

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. Ayandeh’s bailout won’t leave Iranians without harm because it has been riddled with losses on a scale that has had an impact on Iran’s macroeconomics for years and has resulted in murky operations and central bank interventions.

What brought us 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.

Hundreds of unlicensed financial institutions spread across the nation as parastatals, military, or religious foundations.

In many instances, they allegedly did not return deposits, leaving thousands of investors without access to their deposits for years because they offered exorbitant interest rates to entice cash withdrawals from the banks.

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.

After being taken over, the institutions had little money in their pockets as a result of insider loans and property sunk.

The institutions had to print money to cover the majority of the skyrocketing debt, leading to rising inflation and rising living costs for average Iranians.

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.

The 63-year-old business tycoon Ali Ansari, who is credited with founding both Ayandeh and Tat, owned the majority of the shares in both financial institutions along with family members and close friends. His family is thought to be among Iran’s wealthiest.

Ansari has served on the boards of Tehran’s Esteghlal football club, as well as other business and influence-building initiatives, and has owned and led large-scale real estate projects.

Just how big are the numbers?

The bank has received years of state funding.

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.

The bank continued to borrow money from the central bank and the government to keep afloat, but that did not help.

The central bank reported that Ayandeh had a staggering 5 quadrillion rials ($4.67 billion using the current open market exchange rate) in debt and had 2.5 quadrillion rials ($2.3 billion) in people’s deposits by the time of its forced dissolution last week.

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.

A small number of people and businesses that are closely connected to Ayandeh and its internal projects received up to 1.3 quadrillion rials ($1.21 billion), according to the central bank. Authorities have declined to reveal the identities of the individuals who stole the funds.

Iranians online have also been widely reacting to news of Ayandeh’s bankruptcy. Pedram Soltani, a businessman from the private sector, was one of those who demanded accountability.

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مردم باید بدانند هزینه چه کسانی بر جیبشان تحمیل شده است.

Translate: Ayandeh Bank’s list of overdue, doubtful, and toxic loans and assets is public! &nbsp, People must know whose costs have been imposed on their pockets.

The majority of Ayandeh’s loans have been overdue for a year or longer, and they are regarded as unlikely to be recovered.

All Iranian banks have a sizable volume of non-performing loans (NPL) in their books, according to Bijan Khajehpour, an economist and managing partner of Eurasian Nexus Partners Consulting.

“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 “reveals a lot about the extent of corruption and how political favoritism undermines business activities.”

According to the central bank, Ayandeh was in charge of an incredible 42% of all overdrafts made by banks from the central bank and 41% of all capital imbalance in the troubled Iranian banking sector.

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.

The banking sector’s average CAR has increased since its elimination, increasing it from 1.36 percent to about 5 percent.

Ayandeh is not a singular case; it merely highlights Iran’s systemic woes that are so dispersed around the world.

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 and conflict in politics

One day prior, ultraconservative cleric Gholamhossein Mohseni-Ejei, Iran’s judiciary chief, directly threatened Mohammad-Reza Farzin with legal action, the announcement regarding Ayandeh’s dissolution came.

“Mr Farzin, you have sufficient legal mandate to make any decision about Ayandeh Bank. Do your legal obligations otherwise we will enter and cost you more,” he wrote in a post on X.

Ejei claimed that the central bank’s accumulated losses increased by up to tenfold in the span of seven years despite the central bank’s involvement in running Ayandeh, including appointing and firing the board of directors and CEO.

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

Hardline politicians affiliated with the Paydari Front, who have been gaining influence in the parliament, the Islamic Revolutionary Guard Corps (IRGC), and state media, have consistently been the most vocal critics of the private bank.

The hardliners opposed the bank, which earned them points for posing as anti-corruption, along with reformers who support liberalizing and opening the Iranian economy to the West and discrediting political and economic rivals in the technocratic camp.

Mohammad Bagher Ghalibaf, the speaker of the parliament and former IRGC commander, described Ayandeh’s dissolution as “a great success for the country’s decision-making and governance system” in a Saturday statement.

How Iranians will end up paying the price

Ayandeh’s demise also gives its assets, many of them in the real estate sector, complete state control, but selling them will be time-consuming and challenging.

The central bank has made it clear that Bank Melli will transfer all of Ayandeh’s assets, but not “any of the imbalances,” and that Melli will manage and sell them in order to make up for some of the losses.

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 covers bank deposits up to a certain cap through the central bank’s auspices, will also have to cover the cost.

The top shareholders in Ayandeh’s company will be required to pay some of the money, according to the central bank, but it is unclear how much, when, and exactly in what form they will be required 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.

Printing more money, which has long been cited as the main factor in Iran’s inflation, which is currently at over 40% despite reinstated UN sanctions, and consistently among the highest in the world over the past ten years, will have to be done.

In plain English, tens of millions of Iranians will be liable for the cost as a result of declining purchasing power over the coming months and years.

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.

In a statement released on Friday, Ayandeh’s Ansari claimed that the bankruptcy resulted from “agreements and practices that were beyond the bank’s control,” adding that the bank has “left behind valuable legacies and lasting assets.”