Economy, Business And Markets

Banks Should Deliver As Conditions Improve

Banks Should Deliver As Conditions Improve Banks Should Deliver As Conditions Improve

The first vice president has called for addressing problems of the banking system, recalling that commercial banks are the primary source of finance for manufacturers in the bank-based Iranian economy.   

Eshaq Jahangiri made the appeal in a meeting with CEOs of banks and financial and credit institutions in Tehran on Wednesday, Fars news agency reported.

The meeting was attended by senior officials including Minister of Economic Affairs and Finance Ali Tayebnia, Head of the National Development fund of Iran Seyyed Safdar Hosseini, and secretary of the Cabinet Mohsen Haji Mirzaei.

The attendees discussed the main obstacles the banking sector has been grappling with for years and explored avenues to render the lenders effective and efficient. Problems of the key banking industry is said to be largely due to the economic sanctions and poor economic conditions in recent years.

 Higher than Expected

Regardless of the scale and scope of the problems, the performance of banks has been "better than expected" in the previous Iranian year (ended March 22), said Jahangiri. "Although the banking sector was expected to offer 2.8 quadrillion rials ($93.4 billion) in loans in the previous year, lending by commercial banks actually amounted to 3.4 quadrillion rials ($113.5 billion)."

Banking and oil were two sectors that suffered more than others when the sanctions were in place," he said, and this indicates the significance of the two sectors in the economy, the veep added. "In the post-sanctions era, the two sectors are expected to enhance their activities with a view to improving their contribution to economic growth."

Commercial banks are now expected to make a greater contribution to the process of economic collaboration with European countries and seize the opportunities that have emerged in light of the July nuclear deal with the P5+1 (five permanent members of the UN Security Council plus Germany), Jahangiri said.

Commenting on the volatility in the foreign exchange market, he said, "Although there have been fluctuations in currency prices, the dollar has rarely surpassed 3,400 rials. However, in 2011 there were periods when the US currency was sold for 3,900 rials."

On economic growth rates, he said, "Better budget allocation in the previous year, slight increase in oil prices, the spirit of hope nurtured after President Hassan Rouhani took the office in 2013, and higher contribution of the private sector to the economy together contributed to a GDP growth of 3% in the previous year."

The senior presidential aide however added that "Despite expectations, the economic growth did not continue in the present Iranian year (started March 21) because of the decline in oil export revenues and budgetary restraints among other things."

Enhancing Capital  

The economy minister said the main problem of industries is the limited financial resources avilabel to them from commercial banks. "In the present situation, coping with the financial bottlenecks of banks is and should be a priority for the government."  

According to Tayebnia, "Issues like rise in the demand for loans [in previous years], government debts to banks, piling up non-performing loans, and limited capital of the banking system, have indeed undermined the lending power of banks."

The governor of the Central Bank of Iran talked about the gravity of problems of the banking system. "The financial structure of banks has been weakened and their ability of the banking network has declined," Valiollah Seif said.  

Referring to informal money markets as "the main components of the banking system", Seif called for meaningful supervision of financial and credit institutions.

Managing directors of commercial banks expressed their own concerns over the situation of banks and also offered some solutions. Effective supervision of policies announced by the CBI, especially with regard to interest rates, creating debt markets, reducing the penalty rates on bank overdrafts, foreign borrowing and establishing asset management companies to recover bad loans were among the key proposals.