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Bank Saderat: Zero Mizan Liability

Bank Saderat:  Zero Mizan LiabilityBank Saderat:  Zero Mizan Liability

B ank Saderat said it has nothing to do with the defunct Mizan Credit Institution and its liabilities in a statement on Thursday.

Mashhad-based institution Mizan was closed down by the Central Bank of Iran for failing to comply with the bank’s regulations. The custody of Mizan’s accounts was given to Bank Saderat, the largest private bank in Iran.

Saderat released the statement to clarify its position regarding Mizan, as its name has been all over the media after it took  custody of the credit institution. The bank wanted to quell its shareholders’ worries about its profitability.

“The bank has no responsibility about the institution’s issues, actions and activities,” Saderat said in the statement.

Saderat’s claim has already been confirmed by the authorities. CBI’s Deputy Governor Akbar Komijani told Eghtesad News on June 6: “The bank will only act as an agent and will not spend any money from its own resources to reimburse Mizan’s depositors.”

“Mizan’s micro depositors will be reimbursed by the institution’s available funds, but the rest of the depositors should go through the legal process to regain their investments.”

 Saderat’s Role

Bank Saderat has been tasked by the judicial authorities to handle the process of reimbursing Mizan’s depositors.

A debt settlement board, selected by Mizan’s managers, in charge of selling the institution’s properties to help reimburse depositors, was created in Mashhad, Khorasan Razavi Province.

The board deposits money in an account created by Saderat. The bank then uses the money to reimburse Mizan’s creditors, according to a list provided by judicial authorities.

Mizan’s assets are estimated at 28 trillion rials ($9.5 billion). However, the institution’s reserves have been the starting funds in the reimbursement process.

The company’s reserves amounted to 1 trillion rials ($340 million at official exchange rate), according to Hamid Tehranfar, vice governor of the central bank.

 Scrapped Merger

Previous plans to merge Mizan with Saderat were scrapped after Mizan failed to accept Saderat’s conditions and its board and chief executives were arrested for missing a court deadline for repaying the lender’s depositors.

One of Saderat’s conditions was to lay off all of Mizan’s employees.

Such mergers have been the norm of central bank’s way of dealing with failing credit institutions. The bank has always sought to contain the impacts of lenders going bust.

The central bank’s course of action has been criticized by many, saying the bank’s support of defunct firms has emboldened lenders to take on more risk and depositors to avoid central bank warnings and deposit their money with illegal instuitions.

Many analysts have also criticized the mergers for their effect on the performance of the overtaking company.

Such mergers punish the bank’s shareholders, as the overtaking bank’s shares usually dip in value. This happens because the closed down company’s assets and their risk is transferred to the new owners, affecting their profitability and financial health.

The mergers also reward wrongdoers. The failed company’s shareholders get a stake in the overtaking company, protecting and reviving their investment, Hossein Abdoh Tabrizi, a senior adviser to the minister of roads and urban development and the former head of the Tehran Stock Exchange, wrote in the Financial Tribune’s sister paper Donya-e-Eghtesad in March.

The mergers are particularly painful for banks in current conditions. Economic downturn, government specified lending and poor risk management have left them with well over $30 billion non performing loans. Toxic debt and investment in illiquid assets, in addition to $30 billion in credit to the government, has left the banks in want of liquid resources and depressed lending.

Financialtribune.com