Economy, Business And Markets

4 State Banks to Improve Credit Profile

4 State Banks to  Improve Credit Profile 4 State Banks to  Improve Credit Profile

Three state-owned banks, Bank Melli Iran, Bank Sepah and Bank Keshavarzi have gained parliament approval for increasing their capital by 50 trillion rials ($1.65 billion).  The capital increase was proposed by the government in its 2016-17 budget proposal. The overall budget law was approved in the chamber on Sunday but its details are being debated. The current parliament's term ends in May.   

The Central Bank of Iran was tasked to increase the government’s share of capital in the said banks by up to 50 trillion rials, IRNA reported.

Also in a measure to increase Bank Maskan's capital, the Majlis approved the sale of immovable properties owned by the Ministry of Roads and Urban Development.

While debating an article of the budget law on Tuesday, lawmakers also authorized the sale of immovable properties of the ministry worth up to 50 trillion rials, proceeds of which will be used to augment Maskan's capital as the major lender in the home construction market, Fars News Agency reports.

Noting that this year's budget is in accordance with the upcoming five-year economic development plan, Mohammad Bagher Nobakht, vice president for strategic planning and supervision, said, "Banks are unable of providing sufficient loans because of lack of financial resources. Therefore, selling the immovable properties of banks is a must."

Iranian lenders saddled with billions of dollars in soured assets have been urged to minimize their non-banking activities and shed excess assets to raise capital. It is reported that the multiplying layers of NPLs, botched investments in real estate and huge loans to big corporations in recent years that have not been recovered are the main source of serious problems for most state-owned banks.

 According to CBI statistics, bad debts in the banking system amount to 938 trillion rials ($32.8 billion). The dangerously high amount of toxic loans – mostly incurred by state-owned banks – has called the solvency of some banks into serious question. It has eroded their willingness and ability to lend, threatening the stability of the banking system and by extension economic growth targets.

In one instance, an auction was held on March 8 to sell the banking sector's excess assets. The Bank of Mine and Industry, Bank Tejarat, Bank Refah, Bank Keshavarzi, Bank Sepah and the Export Development Bank of Iran said they would sell 500 properties worth 26 trillion rial ($860 million).

This was the eleventh such auction to get rid of the banks’ excess assets.

"The government's budget permits infusion of new capital into Bank Maskan to help it provide loans and build new towns," Nobakht told a press conference.

Building new towns is among the declared policies of the Ministry of Roads and Urban Development in a bid to increase the supply of housing that in turn serves as a response to the rapid expansion of megacities. Minister of Urban Development, Abbas Akhundi earlier in the week talked about decline in the density of population in the southern parts of the country saying that his ministry wants to build new townships in the south.

To help finance such projects and build new towns, new funds will be set up similar to the one for the sprawling Ekbatan housing complex west of Tehran.

Debt Kerfuffle

In debt-related news, the lawmakers rejected a proposal on using foreign exchange revenues for clearing government debts to the banks. The government was planning to settle 500 trillion rials ($16.5 billion) of its debts to banks through foreign exchange resources in the process being unfrozen in the wake of sanctions relief that started on Jan. 16  

Elaborating on the reasons for rejecting the plan, Mohammad Reza Pour Ebrahimi, head of the Majlis Joint Commission said, “The government proposal could solve much of the problems in the banking sector, but it would cause problems in long run.” He did not elaborate.

The Majlis Research Center had earlier published a report about the proposal, claiming that “approving the proposal would set a bad precedent for the government to make similar moves in the future, which would have negative impacts on the economy.”

Ali Tayyebnia, the economy minister, told lawmakers that the government will not make similar demands, “We want to solve the (debt) problem once and forever.”

He lamented that banks are long struggling with a shortage of resources and that the stressed assets account for 70% of banks' resources. Iran' banking system is dominated by state-owned lenders that account for the major part of all loans across key sectors.

“Using foreign resources would not raise the country’s monetary base,” the minister reportedly told the legislators.