Bank Mellat Shares Lose 37.5% in One Day

By closing ticker symbols of banks, the authorities argue they are trying to protect shareholders from losses. They say the level of transparency in Iranian banks has been a weakness that must be tamed before the banking system collapses. “Opaque banks will take enormous risks that endanger shareholders, industry and the economy alike,” Donya-e Eqtesad quoted CBI Governor Valiollah Seif as saying in an address at a banking conference Jan. 24 in Tehran. Only if transparency is achieved can banks be held accountable to the regulator and the public, he noted.

By transparency, he means that banks should release “accurate, relevant, complete and on-time” information and reports that can be easily supervised by the regulator. The CBI governor implicitly blamed the financial regulator (SEO) for failing to adopt more thorough transparency laws and regulations that are capable of holding banks accountable. He also said the SEO’s support can make the CBI’s supervision much more effective.

The CBI’s main complaint is that commercial banks and credit institutions do not fully comply with interest rate regulations. As such, it expects the SEO’s accounting auditors to do more to protect the shareholders of banks. The issue is that some banks go through complicated procedures to mislead the CBI, simply because they are in a dire financial situation and therefore need to attract and maintain more deposits. As banks are struggling with a shortage of financial resources, the central bank pushes for increasing lending. To resist the CBI’s rising pressure, lenders have come up with the following solutions:

First, some banks offer high interest rates to fixed term deposits or other accounts in clear defiance of the CBI rule that calls for a top return rate of 15% on deposits. This ceiling seeks to discourage depositors from parking their money in banks in the hope that the freed-up liquidity will boost manufacturing and small businesses.

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