Economy, Business And Markets

CBI: Banking Sector Coming Back

CBI: Banking Sector Coming BackCBI: Banking Sector Coming Back

Italy’s UniCredit, a global banking and financial company, has expressed its willingness to cooperate with Iranian lenders, Valiollah Seif, governor of the Central Bank of Iran said, CBI’s website reported.

He added that the CBI’s account in Italy has been reactivated after negotiations with the governor of Italy’s central bank, Banca d’Italia.

“The CBI is trying to normalize ties with European lenders,” Seif said in a meeting with academics at the University of Tehran on Feb. 2. He pointed to the MoUs signed with Italy’s SACE and France’s COFACE saying that the agreements were among the achievements of President Rouhani’s three-nation European tour last week.

Italy and France signed initial deals with Iran worth more than $60 billion in a variety of fields -- from oil and gas to car manufacturing, construction, health and agriculture and clean energy -- last month during the presidential tour.

Pointing to the implementation phase of the nuclear deal between Iran and the six world powers, Seif said $32.6 billion of Iran’s foreign assets had been freed over the week. “The CBI’s share is $28 billion while $4.5 billion belongs to the government.”

 Forex Rates

The governor referred to the present dual exchange rate system saying, the “dual foreign exchange rates beget corruption and the CBI is determined to unify currency rates by the middle of the upcoming fiscal year (starts March 20).”

Seif was of the opinion that hard currency rates should be set according to economic realities including the inflation rate. “We should not try to impose fixed rates in the hard currency market. Rather, we should strive to minimize market volatility.”

 Money Crunch

Iranian lenders since the early 1980s have not been able to increase their capital compared to the size and growth of the national economy and this is one of the primary reasons behind the current credit crunch, according to the CBI chief.

Elaborating on the issue of credit crunch, he said the “government’s high volume of debts to banks is another key factor behind the credit crunch.  A whopping 15% of the banks’ resources are locked in the form of government debts,” he expounded.

Non-performing loans are another reason behind the huge problem with “12.5% of banks’ assets being blocked in the form of non-performing loans.”  Another 15% is blocked in the form of soured assets of banks in the property market”.

 Lenders’ Role

Seif stated that the structure of financing in Iran is vastly different from other countries with banks undertaking 85% of the total financing to businesses. “In  advanced economies max 20-30% of the financing comes from banks.”

CBI deputy chief, Ali Akbar Komeijani told the students and teachers that most of the Money and Credit Council’s directives are related to generating growth in the sluggish housing sector.

“The CBI is doing its best to stimulate growth in the housing industry.”

On the government’s debt to banks he said “loans to the state-owned sector are unprofitable and non-performing.” He called on the government reduce its economic footprint and downsize.

“The major portion of the banks’ loans should be directed to the private sector,” he said echoing the open and vocal concerns of economists and analysts who want the government to curb its unhelpful and dominating role in the economy and instead focus on setting policy and increase its supervisory role.