Iran aims to overhaul its banking sector by tackling non-performing loans (NPL) and imposing tougher capital requirements after years of isolation, a senior central bank official said, adding the country was working on a Eurobond issue.

Many of Iran's banks are still struggling after piling up bad debt during the more than a decade-long sanctions era. The situation was compounded by several banks having exposure to the country's property market, which turned sour in 2012 leaving problem loans in the system.

"We are committed to tackling the NPL problem, hopefully by improving the economic conditions," Peyman Ghorbani, economic vice governor with Iran's central bank told Reuters on the sidelines of an FT Iran conference in London.

"But for the remaining part, it is under investigation in the central bank - if it is necessary to establish an asset management company, we are going to do so."

Official data showed the ratio of non-performing loans to total loans was 13.4 per cent in the Iranian month ending June 21, 2015. Market estimates point to nearly double that figure with the equivalent of $40 billion at the top end of estimates for non-performing loans.

"What we are trying to is repair the capital adequacy ratio of the Iranian banks. The first step is Basle I and then we will go to Basle II and III," he said.

Since the 2008 financial crisis, most banks must adhere to international capital standards, known as Basel III, which require them to bolster their balance sheets.

International sanctions, including banking restrictions, imposed against Iran ended in January under a deal with world powers in which Tehran agreed to curb its nuclear programme.

But US measures including a ban on dollar trading and a freeze on US banks engaging in trade remain in place. This has left non-US banks and insurers wary of processing transactions with Iran, fearing they may still fall foul of the existing measures and a lack of clarity on what they are able to do.

Ghorbani said Iran's central bank had started to have better cooperation with central banks in Italy and Switzerland.

"We want to have a good relationship with all banks including the European Central Bank," he said.

"We are committed to do so with the rest of Europe if they want to."

Ghorbani said the central bank did not see "any problem" with being cut off from dollar transactions after years of being frozen out when major banking sanctions were imposed in 2012.

TAPPING CAPITAL MARKETS

Iran was also working on a Eurobond issue, and was serious about tapping international capital markets if the need arose, said Ghorbani, without giving any details on timing.

"We have a current account surplus, but the needs of financing is so much if we need to get that 8 per cent growth we have to have inflow of capital."

The major oil producer, whose economic growth is currently close to zero, is aiming for 8 per cent annual economic growth under a new post-sanctions development plan.

Ghorbani also said the bank hoped for lower interest rates in the coming six months.

"As long as inflation comes down we are going to lower interest rates," he said. "We keep being active in the interbank market, and we do whatever it takes to lower the interest rate."

Ghorbani said Iran would unify its exchange rate in the coming financial year, which starts in late March.

"We are working on that, and we are going to implement it."

Iran has a formal exchange rate set by the central bank and an unofficial rate used more freely, and has said previously it planned to unify the two. – Reuters