Page 31 - bne IntelliNews Country Report: Iran Dec17

8.0 Financial & capital markets 8.1 Bank sector overview
Rouhani gets serious on reforming Iran’s unfit banking industry
Haemorrhaging money
Iranian President Hassan Rouhani has committed his second administration to rectifying problems in the banking system and removing what he described as unhealthy competition, Islamic Republic 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-performance and investment choices of some such institutions, 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, g roups 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 overwhelmingly 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 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 administration 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 matters,” Rouhani remarked.
It is clear that many Iranian banks are haemorrhaging money. Back on May 27, it was reported that the central bank is looking to merge lenders weighed down by bad debts in order to meet international debt reduction standards. Such consolidation 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 private 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.
31 IRAN Country Report November 2017 www.intellinews.com