Economy, Business And Markets

Majlis Pushes Gov’t on Banking Reforms

Majlis Pushes Gov’t on Banking ReformsMajlis Pushes Gov’t on Banking Reforms

 As the parliament is mulling a bill on rewriting the usury-free banking law, the Economy Ministry has announced that the long-awaited banking reform draft bill would be submitted to the Majlis by the end of month, leading to speculations that the government is in a rush to introduce its own law before the Majlis gets on to it.

Behruz Hadi Zonuz, an economic analyst said the Majlis has been waiting for a banking reform bill for a long time.

 “The previous government had no plan to reform banking laws and the current administration has been procrastinating  for almost two years. Yet it appears that the Parliament’s debate on the issue pushed the ministry to move,” AkhbarBank website quoted him as saying.

A former governor of the Central Bank of Iran recently criticized the Majlis for discussing a banking reform motion while the government was trying to put together a similar revisionary plan.

The motion was first adopted in Parliament on May 26 when the former CBI chief Tahmasb Mazaheri complained that revising a law as significant and overarching as the banking law cannot be done in the limited framework of a parliamentary motion, suggesting that the draft bill should first be prepared by the government and submitted to the Majlis for revisions if necessary.

The Majlis banking reform motion seeks to create a new council to work in collaboration with the CBI’s Money and Credit Council.

But there are concerns that creating a new policymaking council would actually limit the ability of the CBI rendering its governor “impotent and ineffective”, according to Hadi Zonuz.

“The Parliament’s motion is also flawed in that it contains too many ambiguities and contradictions,” he stressed, and claimed that the government’s banking reform bill is likely to face many objections by the Guardian Council and could be thrown out of the Majlis.

Furthermore, he said, the banking overhaul plan faces serious challenges; namely the thousands of unauthorized financial and credit institutions that offer exorbitant interest rates both on deposits and loans.

“Setting rules and issuing decrees to lower interest rates is not going to produce the desired results unless the CBI takes strong measures to regulate the unlicensed financial institutions. Otherwise lowering interest rates would remain an elusive goal since the competition between banks and uncertified lenders in attracting clients will keep on pushing interest rates higher.”

“The unauthorized financial institutions also play a major role in determining interest rates because they are users of banks’ resources and the major trading partners of banks in the interbank market.”  

Dismissing concerns that capital may migrate to the equity market if interest rates keep in declining, he said while investing in the equity market has many risks, banks offer risk-free returns.

Insofar as risk is always a key determinant for investors, especially for small businesses, it is unlikely that lower interest rates are enough to attract customers or improve money supply, he concluded.