The Central Bank of Iran in a bylaw to banks and credit institutions annulled all previous regulations that banned loans to brokerage firms, investment funds and investment holding companies to buy shares.
Banks now can lend to brokerage companies under the relevant legal framework, the CBI website reported. Rules stipulate that the total loans to brokerages should not exceed five times the value of their shareholder equity (SE).
SE is a corporation owners' residual claim on assets after debts have been paid. It is equal to a firm's total assets minus its total liabilities. Equity can be found on a company's balance sheet and is one of the most common pieces of data employed by analysts to assess the financial health of a company.
Previous CBI prohibited banks from giving loans to holding companies whose “main activity was to manage other companies”.
Banks in the past were allowed to lend only to investment companies financing production-based projects.
The CBI said such rules have been annulled, giving banks more leeway to lend to investment companies involved in non-manufacturing ventures such as those active in the financial markets.
The policy change is said to be compatible with broader measures approved by the government earlier in the month to boost demand in the stock market. Tehran’s bourse is struggling hard to survive after the bubble burst last August and non-stop selloff pressure has continued unabated.
Saddled with their own funding problems, mismanagement and the mountain of bad debt, banks have come under systemic pressure to pour money into the bourse and revive its fortunes.
Tapping into banks apparently seems to the easiest and most convenient way for the authorities to lift the market that most economists contend is a gargantuan task.
Senior government officials appear to have pinned high hopes in banks as the last resort. In April President Hassan Rouhani underlined the need for “efficient and sustainable efforts” to save the stock market and reiterated the role and significance of banks to this effect.
“Banks should rise to the occasion and help revive the market by giving credit [loans] to stock investors,” he said.
Earlier dozens of market experts and managers of listed companies called on the government to ease limits on banks in giving loans to investors and brokerage companies.
