Redefining the role of specialized banks is a crucial need given the country’s current economic and financial conditions, the manager of public relations and customer affairs of the Bank of Industry and Mine said.
“These banks were founded to address the setbacks in the market in procuring funding and contribute to national economic development goals.
They had the mandate to help expand infrastructure and industries by offering financial support for long-term, high-risk megaprojects which are more often than not neglected by other lending bodies,” Mohammad Hassan Torabi was quoted by Shada.ir as saying.
Elaborating the point, Torabi said, “It is obvious that the specialized banks have strayed away from their main tasks due to market volatility and competition with commercial banks.”
The key difference between specialized banks and commercial banks is the facilities and loans they offer, which are designed in line with national aspirations, the banking official recalled.
Their [services] include long-term and subsidized loans given particularly to private businesses in projects and megaprojects they find difficult to enter largely due to funding problems lack of opportunity.
“Specialized or development banks are instrumental to decent economic growth because they [help] complete the value and supply chains. As such, their focus must be on lending, investing, consultancy and participating in financial and non-financial activities because their funds come from the government in the framework of national development plans and people’s savings.”
Torabi concurred that impediments such as the western economic sanctions, lack of financial resources, tanking of the national currency and companies backed by vested interest refusing to repay major loans (both in rial and forex), pushed such banks into financial/monetary activities and attracting big money while moving further away from their main duties.
"The government obliges specialized banks to follow regulations set for commercial banks and this is another challenge. Specialized banks are ordered to offer the same interest rates on deposits, demand the same guarantors and give the same loans and facilities.
This is in sharp contrast to why they were founded. One must ask shouldn’t the rules governing specialized banks differ from those of commercial banks? Has the time not come to craft separate regulations for these banks so that they can concentrate on their raison d'être?”
Iran’s specialized banks need to improve their capital adequacy ratio, he stressed, adding that the global norm is that the ratio of a specialized bank’s capital to a country’s GDP must be between 0.1 and 0.9.
“This ratio is 0.2 for the Bank of Industry and Mine. So, our capital, with a static GDP, must be in the region of $1.6 billion. But it is hardly $214 million! Specialized banks need capital increase to be able to function as expected.”
Policy and decision makers should redefine responsibilities, activities, supporting mechanisms and oversight of specialized banks. Moving forward, he said, sustainable budgets must be allocated to these banks in the seventh Five-Year Economic Development Plan.
The Seventh FYDP has been drafted by the Planning and Budget Organization. Five-year development plans are prepared by governments to help achieve sustainable growth. The sixth plan ended last year.
Earlier, Economy Minister Ehsan Khandouzi, rued about the lack of “independent institutions” specializing in funding macro projects.
“Lack of institutions specialized in funding megaprojects is a key issue because they are crucial for attracting investment,” he was quoted by Fars Nes Agency as saying.
Currently, five specialized banks, namely Bank of Industry and Mine, Bank Maskan, Bank Keshaverzi (Agriculture Bank), export Development Bank of Iran (EDBI) and Cooperatives Development Bank, operate in Iran and are state-owned.
