Economy, Business And Markets

Reforms Crucial for Banking Industry

Reforms Crucial for Banking IndustryReforms Crucial for Banking Industry

Reforming the Central Bank of Iran is the first step to overhaul the domestic banking system, Houshang Khastoui, head of the Association of Chartered    Accountants said.

“The Monetary and Banking Research Institute is at the forefront of formulating the new regulations. The body should diagnose the problems of the banking system and propose the necessary regulations and reforms,” he said at a panel discussion hosted by Fars News Agency.

Echoing calls from an increasing number of business, financial and industrial quarters in and outside Iran, he complained that Iran’s banking laws date back more than 40 years ago and have long outlived their usefulness.

“Non-banking activities are a big part of the banking sector ills. Such activities by domestic lenders are far from the standards upheld by their international peers,” he said.

Banks need to absorb deposits and redirect them into production and industrial activities instead of undertaking risky ventures, the senior accountant told the panel.

Non-banking activities have been a recurring theme on the long list of problems Iran’s banks and lending institutions have been grappling with for years. In the years past they invested unusually huge amounts in the then lucrative property market in anticipation of huge windfalls. However, due to the extended recession in the real estate market banks’ assets have been blocked, giving them a hard time unseen in the recent memory of the key industry.

Khastoui said the banks’ speculative activities have resulted in mounting losses for them. “The huge losses suffered by lenders have forced them to cook the books in order to show that they are making profits” and not in the red as is abundantly visible.

 The previous administration is to blame for the large number of banks and credit institutions that popped up in Iran according to Khastui. “Allowing inexperienced companies to open new banks has indeed shown itself in the escalating woes of the financial system.”

He called for tightening controls and surveillance over the banks saying that further weakening of the banking industry would undermine the economy and must be avoided at all costs.  

“Establishing asset management companies to settle the issue of banks’ bad debts is crucial and urgent,” he said, adding that establishing credit rating companies to assess the banks’ credit risk and rating is another measure that would help give the banking system a new lease on life.