Business And Markets

New Policies Aimed at Bank Profitability

New Policies Aimed  at Bank Profitability
New Policies Aimed  at Bank Profitability

The recent plan of action proposed by the government to exit recession has introduced methods to increase the profitability of banking activities, said the minister of economic affairs and finance on Monday.

Ali Tayebnia was attending the general assembly meeting of Bank Sepah to approve the financial statements of the bank for the fiscal year ending March 20, 2014. Central Bank Governor Valiollah Seif and assembly members also attended the meeting.

Tayebnia hoped that the exit recession bill, which is now in parliament for approval, will help increase capital of commercial banks. “The plan provides numerous methods to increase banks’ capital,” he said, adding that: “It may bring the banks’ capital close to international standards and help solve the problems caused by lack of financial resources.”

“The country has a tough road ahead in the process of discharging banks from their corporate-related activities, regarding the stagflation the country is facing now,” he said.

Article 34 of the Monetary and Banking Law, approved on July 9, 1972, forbids commercial banks from purchasing shares or participating in the capital of any corporate body or purchasing local or foreign securities for their own account in excess of the amount prescribed in special directives and regulations to be drawn up by the Central Bank of Iran.

Experts say the previous government had made wrong economic decisions, which drew commercial banks into vast corporate running activities, by imposing them the ownership of equities of mostly loss making state-run firms in return for the government’s debts to banks.

Nevertheless, an official with the central bank had recently admitted that some of the banks did violate the CBI rule intentionally, by buying corporate shares much higher than the amount fixed by the central bank, “since there is lack of supervision”, the official argued.

Tayebnia said the central bank has identified why banks have participated in business-related activities. He attributed the banks involvement in corporate activities mainly to lack of profitability of their main mission, i.e. conducting banking operations, adding that a set of decisions has now been taken to make banking operations profitable for them.

Tayebnia underlined the fact that commercial banks need to transfer the corporate shares they currently hold.

However, he added that the transferring process will be very difficult and that because of current recession, it is difficult for commercial banks to sell their acquired properties.

A working group has been established in the ministry of economy to develop strategic plans for commercial banks.  

During the meeting, Seif praised the close cooperation between the ministry of economy and the central bank, saying that the minister’s attendance in the meeting of assembly indicated his positive approach toward the CBI’s policies and his openness toward helping the bank fix its problems.

“The main reason behind lowered bank profitability is the fact that commercial banks have been engaged in unhealthy competition in recent years,” Seif said adding that the atmosphere has now improved as a result of appropriate policies taken by officials to stop banks from offering illogical interest rates which could ultimately depreciated the currency.