Reforming the process of issuing bank licenses is one of the measures that could help expand relations with international banks, the Central Bank of Iran’s director general for banking regulations, licensing and anti-money laundering said.
“To understand why a supervisory entity needs to employ more strict measures and precautions in issuing licenses for banks and credit institutions in comparison with other companies, one must consider the importance of the role played by financial institutions,” Abdolmahdi Arjomandnejad also said in the 27th Islamic Banking Conference.
“The crucial nature of banks’ operations necessitates their closer scrutiny,” the official website of the CBI quoted him as saying.
Arjomandnejad linked the economic success of a country to the activities of its banks, stressing that they play a key role in payment mechanisms of public and private business.
“Banks take in deposits that should be ultimately returned, making lenders a part of the monetary resources of the nation,” he said.
There is a considerable number of banks, credit institutions and interest-free institutions in Iran, many of which operate without permission from the regulatory body.
In the wake of several high-profile cases that led to the bankruptcy of some quasi-lenders, the CBI tightened its supervisory grip on the money market, asking citizens to only trust legitimate banks and certified credit institutions.
“The banks play an important part in allocating funds,” he said, adding that banks should have a say in deciding who should receive credits through an assessment process.
Noting that the ability of a bank to survive depends on retaining the trust of depositors, the official said sometimes lack of transparency in the financial statements of banks prevents beneficiaries from assessing the bank’s status.
“The need for monitoring banks can have various justifications, the first of which is to curb the risk of damage to the depositor,” he said.
“With sufficient supervision, public trust toward the banking system will increase. While each and every bank is monitored, officials must be vigilant about the harm one rogue institution can inflict on other banks and on the whole system.”
Arjomandnejad said a major bank that plays a big role in the economic survival of the country is more likely to pose a threat to its financial stability, although smaller banks are not exempt either.
“For example, if depositors become concerned about a bank, they might also close their accounts with other healthy institutions and make the situation worse,” he said.
“The increasing globalization of banking shows that these problems could cross borders and create instability across the world.”
