Economy, Business And Markets

Gov’t Will Help Banks Raise Capital

Gov’t Will Help Banks Raise Capital
Gov’t Will Help Banks Raise Capital

 Increasing banks’ capital is a critical need for lenders and this should be done through all possible means, the Minister of Economy Ali Tayyebnia said Sunday in a meeting with senior bankers

“The banking sector was able to weather the storm of sanctions by cushioning the sting of restrictions on the economy. The government and the Central Bank of Iran will strive to help upgrade banks and raise capital now that the sanctions have been lifted,” he was quoted as saying by ILNA.

The government is planning to boost the production sector in the current fiscal year that started on March 20, according to the minister. “However, lack of finance is a major challenge for the production sector as banks are too shy of resources and lending rates are too high.”

He recalled that “government debts to the banks and other sectors and the mountain of non-performing loans, caused largely by the economic downturn, had severely eroded the banks’ lending power.”

Banks have choked off credit to companies due to the steep recession along with soured and restructured assets. The bad debts and NPLs have in fact rendered useless almost all government efforts to restart the struggling and sanction-hit economy.

 “The government’s total debts, inherited from the previous administration now amounts to five quadrillion rials ($165 billion),” the minister said in outlining the scale and scope of the economic problems of the government saddled with high inflation, low productivity, joblessness and the high expectations of businesses hunting for loans to survive.


 Majlis Approval

Three state-owned banks, Bank Melli Iran, Bank Sepah and Bank Keshavarzi this month gained parliament approval to raise capital by 50 trillion rials ($1.65 billion).  The move was proposed by the government in its 2016-17 budget that was passed by the legislature this week.

However, lawmakers have rejected a proposal on using foreign exchange revenues for clearing government debt only to banks which is about one fifths of its total debts.  The government was planning to settle 500 trillion rials ($16.5 billion) of its debts to banks through forex resources to be released in the wake of sanctions relief that started in January.   

“Several measures were taken during the last two years to lift banks’ lending power, including increasing profitability of banking operations to stop them from getting involved in non-banking operations,” the minister said.

Lenders should rely on fees as a part of their income as global banks normally do, and not merely depend on interests they charge on credits and loans, he noted.

“Lowering banks’ capital requirement is another measure for empowering banks without increasing the monetary base.”

Iranian lenders bending under the heavy burden of bad debts 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 the real estate bubble 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. Referring to CBI measures for lowering rates in the interbank market, Tayyebnia said, “If banks cannot meet their momentary [capital] needs, interbank rates will be raised. Therefore the CBI will remain wary that rates remain low.”