Rarefied Chambers

One thing is all but certain. The status quo of banks, with their rigid structures and unyielding strategies, is not sustainable.

The present trajectory that our banks are hooked on cannot last long. The problem is not only that an ocean of red ink is flowing through their veins. Rather banks and their bosses have been singled out by veteran economic experts and market observers across the political spectrum for undermining the economy for extended periods and disregarding the manufacturing base of those untainted by influence-peddling and graft.

It is not the intention of this piece to announce the obituary of the hemorrhaged lending institutions. The aim is to lay bare the realities visiting the stressful money and credit institutions that had a stellar performance when times were bad.

During the hazardous years of international sanctions, banks in all fairness carried the heavy burden of turning the wheels of the fractured economy to the best of their ability. In the process, however, vested interests wasted little time and through overt and covert means, known to many, lined their own pockets and that of their minions.        

Data released this week has it that Iran’s private sector alone owes the banking industry $251 billion! Add to this $63 billion that the government and its army of loss-making companies and organizations have not repaid to banks.

Then there is the burden of non-performing loans to the tune of $32 billion. As if all this was not enough, orders were hurled at the lenders by the central bank to cut interest rates on term deposits and loans. On top of that is the unending dilemma of unregistered banks and lending institutions seen by most as loan sharks and infamous for shadow banking.

That the present government has tried consistently but failed to resolve the issues of bad debts, stressed assets and the slow poison of hundreds of the unlawful and unruly financial institutions hanging on the coattails of power blocs does not seem to matter for now!

On this exponentially disturbing issue that has wrought havoc on the national economy for more than a quarter century, those responsible will, and must, be in the dock, come what may. Truth be said, all the pain point of the law-abiding banks (NPLs, bad debts, legacy loans, lending by decree, cronyism and massive misappropriation of funds) is on one side of the scale and the lawlessness of unregistered banks on the other.

Now we come to the issue of perception. For all the right reasons our banking system is in the spotlight. This key industry came up for special castigation last week when Tehran’s public prosecutor said banks are in for some serious trouble if they fail to cleanup.

In his blunt manner Abbas Jaffari Dowlatabadi warned banks, their CEOs, security departments of lending institutions and oversight bodies that massive embezzlement and fraud has long become a norm. He was quoted as saying that 1,287 “big fishes” who have borrowed unusually huge amounts from “11 state banks are sitting in their ivory towers and have declared bankruptcy.”

How did we get here? When banks are so easy to manipulate, it is the banking system that must be on trial. To claim that our banks and credit institutions have transformed into rarefied chambers is no conjecture. From the little that has come into the open, it must be said that banks performance, or the lack of it, is a luxury we cannot and should not afford.

As such, banks that are alien to transparency and accountability need to realize that the post-sanctions economic climate is clearly not moving in their direction because for long the lenders have opted for laissez-faire attitude. They are neither innovating nor competing.  

It is true that many things are better said than done. But it is equally true and telling that a banking industry chaos can quickly turn into a financial and economic black hole.

Our problems are further compounded by the bitter fact that we have too many financial and lending institutions: 29 banks with 21,656 branches. The sooner opaque and corrupt banking and lending comes to a halt, the better will it be for our people, our economy and our government.

Banks need to debate their poor performance openly and critically. Adept observers tell us that one of the most important pillars of the economy that still has some time left is anchored in the past. Banks and credit institutions have to move with the times.

Those in charge of these dysfunctional and underperforming money institutions are aware of what needs to be done. For all practical purposes, their systems are outdated and impractical. They are orphans of the costly and chaotic sanctions regime and have to get out of that orbit, not just demonstrate signs of expiation.

Banks need to come up with new ideas not ersatz reforms if they really want to restore their reputation and address the legitimate grievances and concerns of manufactures and businesses.