State banks will boost their capital by an estimated 500 trillion rials ($1 billion) by March 2024 by selling their excess assets, a deputy minister of economy said.
"In this year's budget, it has been anticipated that state-owned banks can increase capital by selling surplus assets and making new investments," IBENA quoted Abbas Hosseini, deputy minister of economy for banks, insurance companies and state company affairs, as saying on Saturday.
The government has said it is taking “serious measures to reform the banking sector” and provide better funding for the people and producers, he said. "Restructuring the banking industry is a top priority of the government and the Ministry of Economy."
Hosseini added that banking reform has been under consideration since the government was formed in August 2021. Two key aspects of the restructuring process are the sale of surplus assets and increasing capital.
The Cabinet in December approved a proposal calling for state-owned banks to raise capital and enhance lenders' capital adequacy ratio. Per the approval, an estimated 350 trillion rials ($650 million) is to be allocated for raising the capital of state banks.
The plan was expected to help improve their capital adequacy ratio except for Bank Melli and Bank Sepah, to above 8% and augment lending power.
Las month, the minister of economy and finance, Ehsan Khandouzi, said the government has fulfilled its promise and transferred surplus assets of banks to the tune of 580 trillion rials ($1.13 billion) up until the end of the calendar year in March.
Regarding numbers, Hosseini said for this year, "we have set higher targets in the framework of the financial restructuring of banks and upholding the law."
Hosseini expressed the hope that with the cooperation and harmony between the Ministry of Economy and the central bank “we will see positive developments in improving the capital adequacy, increasing capital and easing access to funding for the people and companies.”
It has been often reported that banks and credit institutions own an estimated 1,000 trillion rials ($2.8 billion) in non-financial assets, which have piled up over the years mainly due to impaired loans, bad debts, settlement of government debt to banks, branch closures and distressed investments.
Non-banking activities of lenders have long been censured by prominent university teachers and economists on the premise that it is a major hindrance to healthy and transparent banking that has resulted in the explosion of bad debts and non-performing loans.
The Iranian banking system has faced serious challenges for years, namely galloping inflation and tanking of the national currency. Therefore, the government's efforts to reform the banking system, increase capital and support the private sector are instrumental restoring trust in the financial system and provide adequate facilities to businesses.
Government-owned lenders include three commercial and five specialized banks. Bank Melli, Bank Sepah and Post Bank of Iran are the three commercial banks.
Bank Maskan (main housing lender), Export Development Bank of Iran, the Bank of Mine and Industry, Cooperatives Development Bank and Bank Keshavarzi (agro bank) are the five specialized 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 ($84.4 million). This, however, was 60.3% less than the year before when it reported 67.52 trillion rials ($213m) loss.
The other five banks made 1,780 billion rials ($5.6m) profit. The six banks' accumulated loss increased by 3.1% last year to 867.36 trillion rials ($2.73 billion), the largest portion of which, 695.35 trillion rials, belonged to Melli.
The capital adequacy ratio (CAR) of Bank Melli was 8.7 based on the 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 BIM 2.8.
Data show that Bank Maskan, Bank Keshavarzi and the Cooperatives Development Bank raised capital during the year to March. The six banks collectively generated 543.84 trillion rials ($1.71 billion) from banking operations – up 51% y/y.
