The Economy Ministry has detailed plans for raising the capital of state banks in which two specialized banks, namely Bank of Industry and Mine and Bank Maskan, are set to raise capital higher than other lenders, seemingly in line with government support schemes for the production and housing sectors.
The Cabinet last week approved a proposal calling for state-owned banks to raise capital and enhance capital adequacy ratio by allocating an estimated 350 trillion rials ($863 million).
On Monday the Economy Ministry's news outlet announced that Bank Maskan and Bank of Industry and Mine will each boost capital by 100 trillion rials ($246.3m).
Bank Keshavarzi, Bank Melli Iran and Bank Sepah are set to receive 35 trillion rials ($86.3 million) to boost capital as part of the next budget plan.
The Cooperative Development Bank is to raise capital by 30 trillion rials ($73.8 m). Post Bank Iran and Export Development Bank of Iran will do so by adding 10 trillion rials (24.6 million) and 5 trillion rials ($12.3 million), respectively.
By increasing the capital of banks the government seeks to boost lending capacity and underpin support for cash-strapped production units. The measure should also help improve bank capital adequacy ratio to above 8%, the ministry said.
Government-owned lenders include three commercial and five specialized banks including Bank Melli, Bank Sepah and Post Bank.
Bank Maskan (main housing lender), Export Development Bank of Iran, Bank of Mine and Industry, Cooperative Development Bank and Bank Keshavarzi (agro bank) are the five specialized banks.
Responding to the government plan, caretaker of Bank Maskan Ali Askari said the 100-trilllion-rial in fresh capital will help the lender improve funding for the key housing sector, "especially now that the bank is expected to fund the government’s national housing initiative."
President Ebrahim Raisi and his economic team has pledged to build one million residential units a year – seen by economists and market observers as a rather tall order.
Performance of Banks
Six state banks recently released their financial statements for the fiscal year that ended in March. A review of their performance shows Melli lost 26.76 trillion rials ($65.9 million). This, however, was 60.3% down on the year before when it was in the red to the tune of 67.52 trillion rials ($166.3m).
The other five banks made 1,780 billion rials ($4.38m) profit while the accumulated loss of the six lenders increased by 3.1% last year to 867.36 trillion rials ($2.13 billion) of which 695.35 trillion rials belonged to Melli.
The capital adequacy ratio (CAR) of Bank Melli was 8.7 based on its last financial statement – the year before it was 11.29. The Export Development Bank of Iran had the highest CAR among the six lenders with 12.7, followed by Bank Maskan 8.7 and Melli 2.8.
Data show that Bank Maskan, Bank Keshavarzi and Cooperatives Development Bank raised capital during the year to March. The six collectively generated 543.84 trillion rials ($1.33 billion) from banking operations, posting a y/y growth of 51%.
Economy Minister Ehsan Khandouzi has publicly criticized banks for their ineffective approach to financing key production sectors and called for rewriting their mandate in funding economic sectors.
Most banks, especially those affiliated to the state and government, are struggling with weak balance sheets, due in part to huge lending obligations imposed over the years by the parliament and governments.
The financial records of lenders show almost all are struggling with capital inadequacy below global norms.
The Majlis Research Center said earlier that the CAR in Iranian banks and credit institutions must be at least 8%, citing guidelines issued by the Central Bank of Iran.
“This is while the CAR of eight state banks on average is -1.12%,” the parliament’s research arm said.
The same is true for private and semi-private lenders. Of the 23 reviewed banks, CAR in eight was below zero, six had a ratio between 0-4% and four between 4-8%.
