A senior banking official believes setting up a debt securities market could create much needed new space for stressed commercial banks in the current challenging economic conditions and rapidly declining oil revenues.
“Banks are willing to cooperate in the process of selling debt securities,” CEO of Bank Saderat Esmael Lalegani told the Persian daily Taadol.
This can help the banks at least in the short-term as most state-owned companies have been unable to repay their outstanding debts to banks, he noted.
The remarks came in reference to government’s plan to launch a debt market through a partnership involving the Central Bank of Iran, Economic Coordination Council and the newly restored Management and Planning Organization of Iran. The aim of creating the debt market would be to sell the huge government debt (bonds) to the public.
CBI officials have recently announced that a motion for amending the law on banking is in its final stages and would be sent to the Majlis for approval before the upcoming parliamentary elections, scheduled for February 2016.
Regarding workable methods and mechanisms needed for monitoring the performance of banks in the fields of credit and finance, he said supervision should be exercised before or during the time the loans are being processed. The present supervisory system is visibly inefficacious and has led to the pileup of multi-billion-dollar non-performing loans, he said.
“The banking system needs to reorder its financing methods,” he said, stressing the need to better diagnose the weak and the strong points of the cumbersome banking network and reemphasize implementation of Islamic banking practices.
Thorny Issue
Touching on the need to systemize the plethora of uncertified credit and financial institutions, Lalegani said banks are trying their best to reduce interest rates and, subsequently reduce the cost of financing.
However, he said unauthorized financial institutions are a major obstacle and “a thorny issue” that is making a bad situation worse. “They continue to pose a big challenge to the banking system,” he said, echoing the almost daily protestations of respected economists, experts and senior officials trying, but unable, to get rid of the powerful quasi-banks.
The senior banker reiterated that the CBI has perpetually urged the people not to put their money in such institutions that reportedly are in control of 25% of the economy.
“We advise depositors to put their money in the banks and authorized institutions, even though their interest rates are lower,” the CEO said, expressing the hope that the central bank would come up with some mechanism to fix the problem of the unauthorized lenders that for all practical purposes has over the years become worse reportedly due to stern action by the governments, past and present.
An increasing number of government officials and prominent economic analysts have been warning about the destructive impact of unauthorized lenders that have cropped up in the country in recent years. Hardly does a week pass when senior officials from the central bank do not openly complain about the negative impact of such institutions and their weird practices.
However, little if anything has been down to close their doors or use the full force of the law to stop their activities. More troubling is the fact that even the president and his men have seemingly been unable to confront the unlicensed bank-like organizations reportedly linked to, or under the auspices of, vested interests and influential economic lobbies.
