The Central Bank of Iran's decision to exercise stronger control of the balance sheets of banks and credit institutions will hinder their functions, the CBI vice governor for supervisory affairs said.
It had earlier announced plans to monitor the balance sheets at regular intervals of three months. Farhad Hanifi said by increasing oversight the regulator does not need to create any obstruction on banking activities.
"Banks are not going to be encumbered to grow [by monitoring their books]. We are sending a signal that we are watching their performance, particularly regarding issues that the CBI is highly sensitive about," he was quoted as saying by the IBENA, the news agency affiliated to Monetary and Banking Research Institute.
Investment in non-bank activities, increase in bank expenses, expanding branches and buying fixed assets are among the activities that the CBI wants lenders to restrain from and reverse.
On the flip side, the regulator says it is positive about improvement in their balance sheets resulting from capital increase and purchasing government bonds.
Iran’s Money and Credit Council, the top monetary decision-making body, in November approved increased CBI supervision over banks and their performance.
The CBI said the “instructive program to control the balance sheets of banks” okayed by the MCC allows it to deploy a variety of methods to keep banks and credit institutions in check subject.
Accordingly, the CBI will impose tougher restrictions on those with poor financial records while the well-performing ones will be exempt.
Constraints, however, don’t include lenders’ cash holdings, deposit with the CBI, bonds and the likes. The central bank said limits will largely target assets with priority to “foreign assets” and “miscellaneous assets”.
The CBI boss Abbolnasser Hemmati said the new measures are part of a broader plan to overhaul the banking sector and is instrumental to curb the ballooning money supply.
The regulator stresses that it determined to reform the banking industry long saddled with mismanagement and financial indiscipline.
Measures to revive the lethargic banking sector include restoring order and discipline to unhealthy banks, getting rid of shadow banks, merging banks affiliated to the military, correcting their financial structure plus robust and regular monitoring.
