Economy, Business And Markets

Capital Boost for State-Owned Lenders

Capital Boost for State-Owned LendersCapital Boost for State-Owned Lenders

State-owned commercial banks will raise capital in order to increase lending to the private sector, MPs decided. The money will come from state budget. The lenders are obligated to lend triple that amount to various non-governmental projects. The loans will have a seven year repayment period.

Discussing the bill for removing production obstacles, parliament members agreed on Wednesday that 104 trillion rials ($3.9 billion at official exchange rate) of public resources be dedicated to increasing bank capital over a period of 10 years.

The decision was made to enable banks to finance productive projects rather than solely focusing on trade-oriented businesses, IRNA reported.

The banks would thus be required to allocate three times as much as the amount which their assets have increased in forms of loans to private and cooperative sectors as well as capital asset acquisition projects, said deputy head of the parliament’s economic committee, Iraj Nadimi.

The loans are to be returned in mortgages over a period of at least seven years, Nadimi added.

“During the past few years, commercial banks have only been providing loans to their affiliated companies; this has transformed them into mere employers rather than providers of financial services, the lawmaker commented.

Limiting lenders’ resources to running commercial businesses only will eventually take its toll on the country’s production and economy, he warned. “Several job opportunities would also be lost.”    

Unfortunately, while banks continue to invest in commercial activities, many manufacturing units are suffering from lack of cash flow, the lawmaker noted, stressing that it is necessary for lenders’ resources to be channeled once again towards “productive projects and the manufacturing sector.”

The Central Bank of Iran is obliged to preserve the assets of the general public and ensure that financial resources entrusted with all lenders are put to use in productive projects, he emphasized.

In next year’s budget bill, the government seeks to increase capital of the banks in a bid to make business compatible for them, which officials hope provide financing for the already financially struggling manufacturing units across the country.

The budget bill suggests that surplus oil revenue and the revenue earned from privatization can be a source to raise the capital.

Increasing capital of state-owned lenders, according to the report, can only leave a beneficial impact if the structures and performance of the banks are also overhauled.