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Eurasia
September 1, 2017 www.intellinews.com I Page 18
Rouhani gets serious on reforming Iran’s unfit banking industry
bne IntelliNews
Iranian President Hassan Rouhani has committed his second administration to rectifying problems in the banking system and removing what he de- scribed as unhealthy competition, Islamic Repub- lic News Agency reported on August 29. Several banks in Iran are bordering on insolvency, while the country’s credit institutions are operating with high debt ratios.
In recent years, the Central Bank of Iran (CBI) has struggled to begin seriously addressing problems in the banking sector. However, it has made some noteworthy progress, including forcing many poorly performing credit institutions to merge to lower their overall debt level. The under-perfor- mance and investment choices of some such in- stitutions, which typically offer several percentage points more in interest on deposits than is offered by banks, has in the past year even sparked street protests organised by disgruntled customers.
Such publicly expressed anger is not uncommon among Iranian investors. In early July, groups of angry investors descended on the Tehran Stock Exchange and hoisted banners after suffering heavy losses on the shares of a firm which had drawn in money that tripled its share price triple across one month.
Rouhani — re-elected in May as voters over- whelmingly chose to give the pragmatist and centrist a chance to finish what he started in his first term rather than take their chances with a hardliner – and his team of largely US-educated
A branch of Iran's Bank Melli in the northeastern Khorasan Province city of Nishapur. Established in 1927, the bank is one of Iran's three biggest lenders.
ministers know that there is little time left if they are to turn around Iran’s beleaguered banking system. The president spoke of some of his bank industry concerns and aims on the occasion of Iran’s Government Week. He said his administra- tion would work to raise the bank’s overall level of working capital.
“One of the main programs of my administration is to reorganise the banks, implement articles of the Constitution, remove monopolies and attract foreign and domestic capital, among other mat- ters,” Rouhani remarked.
It is clear that many Iranian banks are haemor- rhaging money. Back on May 27, it was report-
ed that the central bank is looking to merge lend- ers weighed down by bad debts in order to meet international debt reduction standards. Such con- solidation is seen as necessary to enable Iran to reconnect with the global banking system.
Many of the vast amount of non-performing loans (NPLs) burdening state banks, as well as some pri- vate banks backed by governmental entities, can be attributed to loose lending policies permitted under the Ahmadinejad presidential administrations in power from 2005-2013. Today’s borrowers must accept a terribly high benchmark interest rate of towards 20% and many who apply for a loan have no hope of meeting collateral demands.
The banks, meanwhile, are fretting about plans to push down interest rates. As in 2013, some may