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Banking Gone Awry

Banking Gone Awry Banking Gone Awry

Commercial banks ventured into business activities with the implementation of Article 44 of the Constitution, a top finance and banking expert said on Wednesday.

Speaking at a banking conference at the Faculty of Management at the University of Tehran, Heidar Mostakhdemin Hosseini said “An evaluation of the performance of foreign banks shows they never distanced themselves from their main mandate of financial intermediation by engaging in business activities.”

He regretted that commercial banks in Iran own over 400 businesses apart from their regular affiliated companies, and said, “Such a situation is not as rampant in other developing countries as it is in Iran.”

On the root causes of the problem, Hosseini said “the government itself is the main force driving commercial banks into business activities and the issue escalated during the privatization process implemented under the amendment to Article 44 of the Constitution.”

He recalled that before the 1970s, three groups of banks namely commercial, specialized and development banks operated in the country. However, in the 1980s, development banks with direct access to the state budget and able to finance development projects were merged with the other two categories.

“As the government did not have sufficient resources to finance projects, specialized banks that were initially responsible for funding specific sectors were allowed to carry out business activities,” he said.

“It was a wrong decision to merge the banks before they were fully developed because the burden of financing development projects largely fell on the commercial banks that were created for short-term finance.”

As a concrete solution to expedite the completion of pending development projects, Hosseini recommended the authorities to revive development banks and offer their shares on the stock market.

 

Financialtribune.com