Page 35 - bne IntelliNews Country Report: Iran Dec17

Iran introduces its own rating system for banks
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 .
Governor of the Central Bank of Iran (CBI) Valiollah Seif has announced that his institution is to launch a national rating system for banks, Iran Labour News Agency reported on September 17.
Iranian banks, companies and citizens cannot currently turn to any recognised rating system to assess their creditworthiness. US-based companies that might perform the task are banned in the country, meaning the Iranians have opted to develop their own internal system.
CBI-affiliated Iran Credit Scoring Company (ICSC) will operate the system. To date, it has only scored companies upon request.
Seif noted that due to the sensitive predicament of some banks – he did not name the banks he had in mind – not all the ratings would be made public. It is thought several Iranian banks are bordering on insolvency but are continuing to function with government help.
The ICSC rating system is based on four main definitions: “No visible risk,” “Low risk,” “Average risk” and “High risk.” It will assess current turnover and the balance sheet. In addition, the system will rate banks on their ratio of assets to liabilities and management of resources, to name a few areas, to begin with.
It is expected that when the system is fully operational further methodology will be introduced to enable Iranian banks to meet requirements of international banking standards such as Basel II.
35 IRAN Country Report November 2017 www.intellinews.com