One of Iran’s top bankers has said that a “gutsy” approach to restructuring the Islamic Republic’s banking industry would see its number of lenders at least halve over the next six years, with closures and mergers required to modernise an industry weighed down by destructive loans.

Parviz Aghili, CEO of Middle East Bank, made the comments on October 3 at the Europe-Iran Forum in Zurich—an annual event to promote closer economic ties sometimes referred to as the “Iranian Davos”—where he also estimated that a full re-organisation of the $700bn balance sheet of Iran’s banking sector would cost $180bn to $200bn, according to Reuters.

“And we cannot afford it,” he reportedly said, adding: “The government has to be gutsy, whether we like it or not, and shut down some of those banks. They are really not in acceptable shape.”

Aghili, a former HSBC banker, was reported by the news service as favouring a multi-step programme to gradually bring Iran’s banking industry in line with the new Basel III global standards. That would involve banks being given three years to improve their balance sheets and the shutting down of those that, after the allowed period, still showed trading book assets of less than 6% of total risk-weighted assets. Banks showing 6% to 10% could merge and seek new capital to survive, with dividends not permitted until their balance sheets demonstrated adequate capital.

Aghili told conference attendees that the programme should over six years mean from 13 to around half of Iran’s 35 banks surviving.

Iran’s banks were left in a bad way by the economically crippling nuclear sanctions era that ran to the end of 2015. Their prospects are now very much contingent on the nuclear deal that removed and curbed sanctions surviving the hostility of the Trump administration. Iran has called on Europe, Russia and China to continue to back the deal in the event that the US ends its participation.

While it signed the multilateral nuclear deal, the US retained unilateral sanctions against Tehran which, among other things, prevent Iran engaging in trade in dollars.