Economy, Business And Markets

Government Insists on Recapitalization of Banks

Government Insists on  Recapitalization of Banks Government Insists on  Recapitalization of Banks

The Minister of Economy and Finance Ali Tayebnia says extensive plans are underway by the government to help fix the credit crunch besetting the economy and raise the capital of banks.

Calling the shortage of capital and the unacceptably high level of non-performing loans (NPLs) as the “two major challenges” hindering the performance of banks, the minister said the most important thing to be done regarding this is “to increase banks’ capital and this is why the government will present a new bill to the parliament to significantly raise their capital.”

Tayyebnia hinted at shedding the excessive assets of the banks as another plan designed to raise capital.

“I realize that selling property is difficult under the present circumstances, but the housing market is gradually moving out of recession and I expect the banks to sell a sizable portion of their assets this year.”

 Tayyebnia made the comments during the inauguration ceremony of the new CEO of Bank Melli Iran plus a farewell ceremony for the former CEO, Abdolnaser Hemmati, who was appointed to lead the Central Insurance of Iran.

Last year, First Vice President Es’haq Jahangiri had put the total amount of bad debts at 820 trillion rials ($33 billion) -- a 12-fold increase from 70 trillion rials in 2005, when Mahmoud Ahmadinejad took office. The soured assets have hampered President Hassan Rouhani’s best efforts to create jobs and raise living standards. Tackling the bank’s cash-crunch is particularly important because the banking system provides 90 % of funding for the economy.

The minister also pointed to the 22% lending rates against an inflation of 10% and its relation to the credit crunch. “This ratio is by no means acceptable because no efficient business enterprise can sustain such high rates. Therefore the interest rates must be reconsidered.”  

 BMI Vision

Also speaking at the ceremony was Mohammadreza Hosseinzadeh, the new chief executive of Bank Melli who called “dignifying the customers and offering high quality services” as the main pillar of the largest state lender.

“This can be achieved only by improving support for production and small businesses and creating jobs,” he said.

Stressing that “we need to tap into BMI’s full potential at the local and international level,” he claimed that as the biggest bank of the Islamic world, “BMI has experienced many ups and downs but still stands strong and steadfast”.

As to why Bank Melli has been able to persevere, he said, “It is now 89 years since this bank was founded. This bank has roots in the history of this nation. It is a valuable national treasure that has been passed down to us and we will spare no effort to achieve its goals.”

Hosseinzadeh added that Bank Melli should continue on its current path by being progressive and innovative. “Good customer service, absorbing the maximum amount of resources, clearance of bad debts and offering modern services will pave the way for the bank’s success.”