Without Reforms, Iranian Banking Crisis Looms

By Alireza Ramezani for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

In Iran, concerns are growing that banks may be facing the same fate as credit and financial institutions (CFIs), many of which are believed to be on the verge of collapse. CFIs, many of them unlicensed, have caused major disruption in the Iranian financial system in the past decade.

The Central Bank of Iran (CBI) is under rising pressure from the parliament to immediately regulate these nonbank credit institutions, as an increasing number of depositors protest delays in settlement of dues by a number of troubled CFIs. The situation has become so dire that the Supreme National Security Council has been dragged in. Now, there are fears that banks could be next. To avoid this scenario, pundits are suggesting that the CBI be granted more autonomy by the parliament so that it will take more serious disciplinary measures against all financial institutions when necessary.

For the past three years, the administration of President Hassan Rouhani has been trying to pass a bill in the parliament that seeks to grant more autonomy to the CBI. Certain influential bodies, however, have blocked the legislation, said former Bank Saderat CEO Ahmad Hatami in an interview with the Fararu news website June 10, without naming any particular organizations. The banking expert warned of a crisis point in three years or so if the CBI fails to reform the banking system.

The Iranian financial system has not been stable in the recent past due to external pressure and domestic mismanagement. A recent CBI report that reviewed commercial banks, specialized banks, state banks, and credit and financial institutions depicted a generally grim picture of how private banks handle their debt.

Drawing on the report, leading business daily Donya-e Eqtesad wrote June 9 that total bank debt to the CBI increased by 19.2% to 996 trillion rials ($30.5 billion) in March 2017, compared to a year before. As detailed in the table below, commercial and specialized banks had a better performance. However, the private banks’ and CFIs’ debt grew by 206% in the last Iranian fiscal year.

Meanwhile, banks failed to collect money owed by the government during the last Iranian calendar year. The debt of government and state-run enterprises to the banking system, excluding the CBI, surged by 33.1% in the Iranian year ending March 20, reaching 1.6 quadrillion rials ($49.1 billion). Separately, the government also owes the CBI 576 trillion rials ($17.6 billion).

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