Economy, Business And Markets

Case Against Bank-Based Economic System

Case Against Bank-Based Economic SystemCase Against Bank-Based Economic System

The former head of Tehran Chamber of Commerce, Industries, Mines and Agriculture believes Iran’s economy is “bank-oriented,” which makes banks the usual suspects when things go awry.

“The fact is that like most countries, Iran’s economy is dependent on the banking system. It would not be farfetched to describe the economy as “bank-oriented,” Yahya Ale Esh’aq said.  

According to the businessman, this has had many repercussions for the banks and it will continue to do so. “The consequences have not only manifested themselves in the form of economic problems, but in all sectors. Banks are almost always the first to be accused of profiteering and slacking. The highest expectations are placed on banks and it is often forgotten that they are meant to make profits”, he told Khabar Online.

The senior official, however, failed to reflect on the key question that when most, if not all, companies are sinking in red ink and posting immense losses, why the banks should make profit.  

Ale Esh’aq who is currently the chairman of Iran-Iraq Chamber of Commerce says the truth is that “whether we like it or not, under the current circumstances and considering the inadequacy of other financial systems, namely the capital market and foreign direct investment, the banks still need carry the burden of financing the economy up until it gets out of the recession.”

He said role and importance of banks becomes clearer when taking into account that financing is now the main problem of the production sector, a problem that manifests itself in their ongoing struggle to find working capital.

“Thus it is natural that expectations from banks are higher than ever before.”

Iranian officials including Economy Minister Ali Tayyebnia and Vice President Es’haq Jahangiri have urged a transition from a bank-based economy to a capital-based system. Jahangiri told a recent conference the time has come for the economy to move to the capital market for financing long term projects and take the pressure off the banking sector–which finances over 90% of the economy.