Economy, Business And Markets

MCC Discusses How to Raise Lenders’ Capital

MCC Discusses How to Raise Lenders’ CapitalMCC Discusses How to Raise Lenders’ Capital

The Money and Credit Council met this week to discuss the optimal provision of capital to commercial banks in hard cash.

During the meeting, it was approved that for increasing capital in hard cash official credit institutions shall be permitted to issue securities that can be sold as shares in the stock market.

In doing so the institutions are required to abide by laws of trade and obtain permits from the Central Bank of Iran (CBI) and the Securities and Exchange Organization, ISNA reported.

Increasing banks’ assets, specifically state-owned banks, has been among the priorities of the government for quite some time; the bill, currently under review in the parliament, for exiting stagnation focused on the same issue and has been closely pursued by the government and the parliament.

Increasing banks’ capital is needed within the banking system as not only would it benefit the lenders but also the manufacturing sectors and the economy in general.

One of the government’s main focus in the next fiscal year’s budget bill is to increase banks’ capital to help increase their ability in providing loans to manufacturing units.

The budget bill indicates that the needed financial resources can be provided through excess reserves from oil revenues, revenues from sales of state-owned shares in the stock market, and loans from the Oil Stability Fund (OSF).

Note G of Clause 3 in next year’s budget bill thus indicates that the government may allocate a maximum of 5 trillion rials ($182 million at official exchange rate) from revenues generated through offering government shares in the stock market to the increasing of state-owned lenders’ capital.

To that end, the government needs to follow the instructions of the ministry of economic affairs and finance, the Management and Planning Organization, and the CBI.    

The OSF continues to exist despite the fact that another fund, namely the National Development Fund of Iran, has been tasked since 2011 with depositing 20 percent of annual oil revenues. Once the share of the NDFI is paid, the excess is entrusted with the OSF. The reserves of the OSF can therefore be referred to for providing lender’s financial resources and increasing their capital.