The bill of the seventh five-year development plan, which is under review in the parliament, has paid attention to the issue of banking reforms in the second chapter titled "Reforming the Banking System and Curbing Inflation".
However, a close look at this chapter shows that the plan only intends to make limited changes in the banking system. Increasing the capital of banks to resolve the current imbalances, evaluating the assets of banks, identifying non-renewable assets and applying brief reforms in the banking network monitoring system are the most important issues raised by the bill, an economist Nasser Zakeri prefaced an article for the Persian daily Shargh with this note. A translation of the full text follows:
In the past decades, the banking sector has experienced unfavorable developments that have played a significant role in the emergence of today's chaotic economic conditions.
Although the main culprit of this disorder is not the banking network per se, without a doubt, the performance of the institution supervising the banking network and small and large financial and credit institutions has had a big impact.
Banking Imbalances
What follows is just an overview of (what the authors of the seventh development plan call) “imbalances” in the banking industry, which have negatively affected the entire economy, without presenting an effective strategy to deal with this dilemma:
Indulgence in granting big loans to insiders at a time when banks have limited resources for granting loans to newly-married couples;
Facilitating the access of unproductive sectors to bank resources and in contrast throwing big obstacles in the way of the productive sector in receiving loans;
The small contribution of banks in the plan for funding real housing applicants;
Expansion of bank’s non-banking business with the most inefficient methods possible;
Huge conflict of interests leading to the usurpation of cheap loans by shareholders of banks;
Non-performing loans held by customers whose names the relevant authorities are not willing to disclose;
Spread of inequality through the collection of the financial resources of the poor and the allocation of low-cost facilities to the most prosperous sections of the society; and
Granting special loans to certain bank employees with the aim of silencing them for concealing the bank’s extravagance.
In the past and under the unrestrained inflationary conditions, money trading has become a very desirable business, and precisely because of this, efforts to set up financial and credit institutions, whether with or without a license, have intensified.
Along with banks, these institutions collected people's deposits and started profitable businesses with these resources. However, due to their recklessness, in addition to causing irreparable damage to the national economy and hurting depositors, they destroyed the financial structure of banks and caused huge losses by monopolizing profitable businesses.
The jump in the costs of banking network, caused by inefficient management and the high cost of profit-seeking behavior of some influencers, has now forced banks to impose all kinds of new costs on customers in order to make more money and hide their losses.
Applying new tariffs as transaction fees, including on the smallest transactions, is one of the measures that fuel a great deal of public discontent, but compensates part of the expenses of this inefficient network.
In one sense, the banking network can be compared to a powerful but unruly vehicle that has no desire to give a ride to the national economy and serve the development plan.
As a case in point, it is sufficient to pay attention to the fact that many years ago, while the people of Bangladesh were suffering from widespread poverty, only a small bank, without using government resources, started granting micro-facilities to villagers and made a substantial contribution to reducing poverty. But in Iran, while using special opportunities for making profits, banks have not only failed to help curb poverty but, by collecting deposits from low-income groups and granting large loans to insiders, they have effectively turned the first group into creditors affected by inflation and the second group to lucky debtors.
Undoubtedly, part of today's disturbing inequality is rooted in this simple fact. In addition, by buying real estates in bulk, banks have fueled the prosperity of this harmful business, increased housing prices and ignited the double-digit inflation engine.
It is not possible to undo all the harm caused by long-term ignorance in the form of a five-year plan. However, I wish that those involved in developing the plan would make an effort to benefit from the consensus of experts in this regard. By relying on the knowledge and experience of Iran-friendly experts, they could at least prepare the ground for starting the reform process and taming this unruly vehicle. Only in such a case, instead of the current text, we would see an expert version steering the reform movement in the banking industry.
