Economy, Business And Markets

Banking Overhaul Plan to Plug Loopholes, Boost Efficiency

Banking Overhaul Plan to Plug Loopholes, Boost EfficiencyBanking Overhaul Plan to Plug Loopholes, Boost Efficiency

The Banking Overhaul Plan–enacted by President Hassan Rouhani to transform the outdated banking system–consists of several aspects, including a focus on core banking and a unified data platform, the researcher overseeing the plan said.

“With increased attention paid to supervision and better implementation of core banking, some of the loopholes for violating the law will be closed,” Hossein Eyvazloo was also quoted as saying by IBNA.

“Much of the corruption takes place because data monitoring is not properly observed through core banking and a unified data platform has yet to take hold.”

Eyvazloo, who is also an economist, referred to the weakness of regulatory bodies as one of the major shortcomings of the country’s monetary and banking system.

He added that even though the Central Bank of Iran and the Banking Reform Bill have taken on such issues, “improving supervision and battling corruption in the banking system require a new architecture on macroprudential and microprudential regulation, as well as operational monitoring, which is a long way off because of the traditional and inflexible structure of Iran’s banking system”.

“In both these bills, transparency has only been tackled superficially,” he said,

The Banking Reform Bill was sent to the parliament on Sunday.

“There should not be any difference between state-owned and private banks when it comes to management and supervision,” Eyvazloo said, adding that the only real difference between public and private banks is the issue of ownership.

“However, in meetings held between CBI and Economy Ministry officials, it was agreed that in the area of management and supervision, state-owned and private banks should be treated in the same manner.”

 Corporate Governance

Eyvazloo discussed the level of attention paid to corporate governance in the Banking Reform Bill, saying corporate governance standards are now being upheld in private banks, a successful example of which can be the implementation of the scheme to separate the chairman and CEO from the ranks of banks.

“In the three banks of Mellat, Tejarat and Saderat, which are no longer government-owned, the position of chairman of the board and the CEO can no longer be filled by the same person,” he said.

According to the researcher, the issue of not separating these two posts remains a problem in public-sector banks.

“Chairman of the board and the CEO wield all the power in state-owned banks, which leaves the board with no real say in running the banks affairs,” he said.

Eyvazloo said apparently, certain elements within the government are not in favor of a division between the position of chairman and CEO.

“But if that happens, it could lead to many new openings and this is one of the ways of battling corruption in the banking system,” he said.

 CBI’s Independence

Eyvazloo said a new position has been defined for the CBI in the new bill, which bestows upon the central bank a relatively independent identity and makes it impervious to “general laws and regulations pertaining to ministries, government corporations and institutions affiliated with the government”.

Furthermore, the Money and Credit Council–a decision-making body–has been divided into two wings, one of which is a policymaking body professionally tasked with setting monetary policies while the other is a supervisory assembly to help oversee banks.

The researcher noted that the enhanced use of Islamic finance tools, categorizing the banks in a detailed manner, using methods and standards in line with Islamic banking, reviewing regulations concerning the category of banks and identifying non-bank institutions are among issues not discussed at length in the two new bills.

However, Eyvazloo assured that in the Banking Overhaul Plan implemented by the government, these points have been addressed thoroughly.