With the performance of some big state-run banks becoming public, the government has been blamed for pushing them on the verge of insolvency.
Now a group of lawmakers has called on the government to reimburse its debt to the banks.
To this end Kazem Mousavi, a member of the Majlis Economic Commission, underlined the urgency for the government to repay at least a part of the trillions it owes.
“To increase the capital adequacy of banks, the government needs to help them boost capital,” he was quoted as saying by IRNA, the state-owned news agency.
Data published by the Central Bank of Iran indicate that government and state-owned companies’ debts to banks stood at 6,475.6 trillion rials ($23.4b) by end of the last quarter on June 21, indicating 45% increase compared to the corresponding period last year.
Several lawmakers commented on the debt issue after Bank Melli Iran (BMI), the major state-owned lender, published its financial records earlier in the week.
State-run lenders for years had refused to publish financial reports but are now obliged to make public their performance after the Economy Minister Ehsan Khandouzi instructed all state companies, including banks and insurance firms, to do so at regular intervals. The move is aimed at improving financial transparency and accountability of companies affiliated to the state and government.
BMI, A Case in Point
The BMI reports exposed disappointing details about its performance -- 675.23 trillion rials ($2.5 billion) in accumulated losses in the March 2020-21 fiscal.
The accumulated losses are equivalent to 73% of its capital, which literally make the huge bank ready for bankruptcy, the semi-official Fars News Agency reported, citing data published on Codal.ir, an information website for financial reporting by listed companies.
Regarding the heavy burden on the bank to fund state and government projects, Gholamreza Marhaba, the commission’s spokesperson said “BMI’s performance should not be gauged based only on profit and loss.”
“BMI must not be considered a normal commercial bank, but be seen as a state-bank with a mandate to carry out duties of governance,” he was quoted as saying by IBENA, the news agency affiliated to the Monetary and Banking Research Institute.
The lawmaker added that the bank has been the main financer of government megaprojects, noting that its commitment to offer services in less privileged regions has added to its financial burden.
“The bank has more than 2,000 branches in less-privileged regions and most of the branches are not economically viable.”
Likewise, Mohammad-Hossein Hossein-Zadeh, another MP, said that the loss-making is not confined only to BMI as several of its peers too are in dire straits.
Weak balance sheets have severely undermined the lending capacity of banks, deepened economic recession and impacted inflation in prices, the lawmaker concurred.
Obliged to Lend
Banking authorities have criticized the Majlis for the endorsing the provisions of the 2021-22 budget including laws that overburden the already ailing banks, saying that funding approved in the budget include decrees to the central bank and the banking system, which could result in high-powered money and money supply growth.
Banks have been under mounting pressure as they have to both help realize budget targets and comply with the regulator’s increasing restrictions and transparency rules.
It is said that banks are struggling with capital adequacy ratios (CARs) below global financial standards.
Out of a total of 23 reviewed banks, CAR in eight is below zero, six banks have a ratio between 0-4%, and four a ratio between 4-8%.
Only five banks have capital adequacy ratio above 8%, according to data published earlier by Fars News Agency.
Also known as capital-to-risk weighted assets ratio (CRAR), CAR is used globally to protect depositors and promote the stability and efficiency of financial systems. It is calculated by dividing a bank's capital by its risk-weighted assets.
Minimum capital adequacy ratios are critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds.
