A banking expert has called on the Central Bank of Iran to prohibit banks from borrowing from the regulator even though lack of funds may make them spend their savings to cover their internal costs.
Bahaoddin Hosseini Hashemi, former CEO of Bank Saderat and Tat Bank, believes lenders can use deposits for tax payment, covering costs and paying interests and dividends.
The CBI should urge banks and shareholders not to receive dividends for a while, sell their excess assets to raise funds and appoint professional executives to make lenders avoid borrowing from the central bank, Hashemi was quoted as saying by ISNA.
Hashemi said on Monday specialized banks like Bank Maskan, which are in charge of financing housing projects, have borrowed the most from CBI.
“Bank Maskan was left with no option but to borrow heavily from the government and the central bank to fund the Mehr Housing Scheme—a project the previous government launched to help low-income households buy apartments in the suburban areas of big cities,” he said.
“Commercial banks are also indebted to the CBI since they had to raise fund to narrow their budget deficit, a move that has led to the increase of monetary base that adversely affected monetary policies.”
Hashemi highlighted the role of economic sanctions imposed on Iran over its nuclear energy program as a factor causing financial difficulties in Iran.
More than $100 billion in Iranian foreign funds are frozen overseas due to the sanctions. The United States and the European Union have also barred foreign banks from interacting with Iranian banks in the past few years.
The expert believes rising demand for the national currency, in addition to adopting inappropriate monetary policies, has directed liquidity to inefficient markets rather than banks and given rise to non-performing loans in recent years.
“Both toxic debts and compulsory loans, introduced by the government, placed lending limits on banks to a large extent.”
Given the fact that the central bank is now facing lack of resources, “the commercial banks should avoid giving loans to applicants whose business plans are not economically viable,” he said.
According to CBI statistics, toxic loans amount to 940 trillion rails ($32 billion at official exchange rate) and the government owes 980 trillion rials ($33.7 billion) to the banking system.
Hashemi said the recent top-down directive of the central bank on deposit rates, unprofessional bank executives and the rising number of uncertified credit and financial institutions are the main factors hampering the Iranian banking system.
