The governor of the Central Bank of Iran reiterated that all state and private lenders should raise capital to be able to improve efficiency.
Ali Salehabadi said in collaboration with the Economy Ministry the CBI is working on a package to help state-owned banks raise capital, IBENA reported.
“Major shareholders are in charge of increasing capital of private banks,” he noted, adding that the CBI is closely monitoring the performance of lenders.
Increasing capital of banks and credit institutions is envisioned in the provisions of 2022-23 budget.
Law encourages banks to raise capital namely via revaluation of assets and share offers -- methods that have been censured by economists and experts as inefficient and ineffective.
The Majlis Research Center, the expert wing of parliament, says such ways and means do little in improving lenders’ efficiency. In a report the influential think tank said most banks potentially eligible for asset revaluation have done so in the recent past, rendering more asset revaluations irrelevant.
“Recently major state banks have made significant capital increase via revaluation of assets and doing the same again at short notice is economically inviable,” the MRC said.
As per available data, Bank Melli Iran, Bank Keshavarzi and the Export Development Bank of Iran raised 720 trillion rials ($2.4 billion), 97 trillion rials ($323 million) and 20 trillion rials ($66m) in the last fiscal year. Bank Sepah increased capital by 120 trillion rials ($400m) in 2020.
MRC insists that raising capital through such methods like asset revaluation or bartering debt with government has done nothing to improve the financial strength of banks.
In this year’s budget the government can spend a maximum 300 trillion rials ($1b) from selling shares and property in state companies to raise the capital of state-owned banks.
MRC said that this method too is an exercise in futility because it runs the risk of bank failure to monetize assets owned by the government and lenders may be unable to use the proceeds to raise capital.
