The CBI will soon start rating banks. 
Economy, Business And Markets

Banks to Narrow Capital Adequacy Gap

As Iranian banks struggle to improve their capital adequacy ratio and conform to international standards, the deputy director of the Money and Capital Market Commission in Tehran Chamber of Commerce says the Central bank of Iran has issued a directive to plump up banks’ capital cushions.  
Seyyed Hossein Salimi has told IBENA that the vice-governor of the CBI, Akbar Komijani, has communicated a new directive on capital adequacy for banks during the past few days, adding that the current average capital adequacy ratio is 5%, which is well below international norms.
“Based on Basel III standards, the capital adequacy of banks should be 13%,” he said. “The capital adequacy of one or two banks in Iran may be at that level, but it is less than 5-3% for most banks that again is lower than Basel II standards.”
Developed in response to the deficiencies in financial regulations exposed by the financial crisis in 2007-08, the third installment of the Basel Accords is a global, voluntary regulatory framework on bank capital adequacy, stress test and market liquidity risk.
Pointing to the heavy penalties that European banks have had to pay as a result of the dealings they had with Iran during the sanctions era, the official said because of that and despite the easing of restrictions most western lenders and financial institutions “are not falling over each other to work with Iranian banks.”  The reluctance will continue “unless Iranian banks implement international regulations. That is why they are “conforming to the different dimensions of international banking standards and regulations and have created specialized anti-money laundering units.”

 Time Running Out for Banks
Salimi, who is also a board member at the privately-owned Middle East Bank, says while the capital adequacy ratio of Iranian banks is in line with outdated standards such as those of Basel I and Basel II, the banks cannot expect international lenders to allocate credit or trust them.
Noting that while reaching acceptable capital adequacy standards is a time-consuming process, he said “banks will have to be merged if they are unable to reach the necessary capital adequacy threshold by the end of the next fiscal year in March 2018.”
The official also pointed to the CBI plan to impose deposit caps on banks, saying it will discourage banks from absorbing deposits willy-nilly. “It will also hold them accountable in the future for deposits and interest rates.”
In early October, CBI’s deputy for supervisory affairs Farshad Heydari said to foster healthy competition among lenders, the central bank is about to set a cap on the amount of resources and deposits banks will be able to absorb.
“By imposing a cap on the amount of deposits bank can absorb, the CBI is trying to create a healthy and competitive ambience between lenders,” Heydari said. The announcement drew mixed reactions with some calling it “unfeasible.”
Salimi added that because the CBI feels responsible toward the people’s savings, it has placed the amount of deposits with banks under heavy scrutiny. “The CBI is doing this to exert control and make banks more disciplined. We are in favor of this move.”
In September 2015, banks and credit institutions held 83% of the savings, according to CBI data.

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