Critical Condition of Iranian Banks
12 Jan, 2016
Vistar Business Monitor
The research center of the Iranian Parliament has released a report on the banking system which is in “crisis,” warning that Iranian banks may be bankrupt soon.
Out of the 7,333 credit and financial institutions currently operating in the country, only 1,000 are authorized by the Central Bank and supervised by it. The rest, known as unauthorized institutions, have been established by certain organizations which are not necessarily accountable to the Central Bank, the report noted.
According to the report, the government debt increased by 4.8 times at the end of Shahrivar 1394 (September 2015) compared to that of Farvardin 1389 (April 2010.) The debt of the non-governmental companies has also increased by 3.1 times, the report said.
The supervision deputy of the Central Bank governor said in Bahman 1394 (February 2015) that nonperforming loans’ share has increased to 64%, and that if the NPLs are not addressed banks will lose 600 trillion rials in resources. This is the fact that the total capital of banks reaches 710 trillion rials.
The research center noted that the banks’ capital is not enough to compensate rising NPLs.
The government is also indebted to the banking system. It has 1,170 trillion rials in debt to banks and 250 trillion rials in debt to the Central Bank, according to the latest data released by the Central Bank. However, Mohammad Bagher Nobakght, head of the Management and Planning Organization, insists that the government debt to banks is much less – 640 trillion rials.
Meanwhile, banking officials say the banking system has 1.3 quadrillion rials in NPLs, 80% of which must be repaid by 500 customers.
Citing Central Bank data, a recent Etemad newspaper report said that the government debt to banks has increased from 30 trillion rials to 720 trillion rials in the past three years.
According to the parliamentary report, the volume of financial operations by non-banking financial institutions has been tripled between 1351 and 1390. A major part of the money market in Iran is out of control of the monetary regulator, the report added.
The parliamentary research center has also said that six of the unauthorized financial institutions have been handling some 1,330 trillion rials in resources, which accounts for 6% of the total assets of the banking system in the country.
The Central Bank have repeatedly warned against the continuation of the operation of the unauthorized institutions, saying that 20% of the money supply is handled by such institutes.
Mizan and Samen Al Hojaj are two examples of the unauthorized institutions, which have several times been accused of misconduct in the past couple of years. Mizan, holding one million savings accounts and more than 32 trillion rials in assets, was annulled in Khordad 1394 (May 2015).
Mizan has used the Judiciary logo in its own logo, implying that it had been authorized by the Judiciary, not the Central Bank. Mohammad Dehghan, a board member in parliament, revealed that the credit institution had been backed by a number of judges, with some of its branches operating within the buildings of the Justice Ministry though out the country.