Economy, Business And Markets

Sick Banks Face Mergers

Sick Banks Face Mergers  Sick Banks Face Mergers

The Central Bank of Iran has plans to either dissolve or merge banks and credit institutions with a track record of poor performance, the bank's governor, Valiollah Seif said on Tuesday.

Seif warned that the banks failing to improve or play by the rules will be subject to mandatory merger.

According to Fars News Agency, the CBI chief told reporters the regulator will devise a timetable for the banks to secure acceptable CARs (capital adequacy ratios) and other key ratios relating to their balance sheets.

"Should the banks fail to meet proper standards and ratios, they themselves can call for mergers with another bank and the CBI will support the initiative after the necessary assessments," he said.

Smaller banks are more likely to become subject to acquisition deals.

In recent weeks te CBI chief has been spending quality time discussing lending rates, and promoting lending to SMEs.

"CPR includes banks' assets and reserves, although there are other defined ratios that will be considered," Seif said about the ratios.

Narrowing the Rate Spread

On the issue of interest rates, Seif called the recent lowering of deposit rates by banks "a natural process for the economy" and gave assurances that lending rates will meet a similar fate.

"We were of the opinion that there would be no need for a CBI directive regarding this matter and that the interest rates will come down in line with the inflation rate," he said. "The cuts in deposit rates is the first step and loan rates will come down as well."

As announced by Mohammad Reza Hosseinzadeh, the head of the Coordination Council of Public Sector Banks, the implementation of new one-year deposit rates and short-term deposit rates officially came into effect on Tuesday, with the new interest rates set at 15% from the previously 18%.  

"We will witness a cut in lending rates," the CBI head said, but also warned that if the banks don't comply fast enough with the lower lending rates, the central bank may have to intervene.  

He did say, however, that if the banks promptly lower the lending rates, the CBI and the Money and Credit Council will refrain from issuing decrees.

Helping SMEs

In a meeting with the Interior Minister Abdolreza Rahmani Fazli , CEOs of major banks and provincial governors, Seif noted that there is a need for a clear understanding of responsibilities and duties in managing economic affairs.

"Our decision regarding the small and medium-sized enterprises (SMEs) was made following recommendations by the Leader and we will utilize all resources at our disposal [to help small business.]"

 "By allocating 10% of banks' credits to SMEs we will try to reenergize them."

At another event on Tuesday, Seif met with Masoud Soltanifar, head of Iran's Cultural Heritage, Handcrafts and Tourism Organization, stressing the importance of the tourism industry in creating jobs, alleviating poverty and contributing to economic development.

"The CBI considers tourism a priority," said the governor, "we are ready to help this industry to the extent possible."

Calling the tourism industry one of the most lucrative sectors in the global economy, Seif concluded: "According to a report by World Tourism Organization, tourism is a main force in stimulating the world economy and it is one of the main agents in reducing poverty, safeguarding the environment and nurturing peace and cooperation among cultures."