Bank Mergers Will Have to Wait

Central Bank of Iran needs more authority to start merging banks, said Ali Divandari, head of the Monetary and Banking Institute.

Responding to recent reports on consolidating the struggling banking sector, he said, “Merging banks is being considered as a solution in many countries. However, it is not possible to merge (Iranian) banks within the current legal framework,” Mehr News Agency quoted him as saying on Monday.

Back in June Valiollah Seif, the CBI governor, said the regulating body has plans to either dissolve or merge dysfunctional banks and credit institutions. He warned that the banks failing to improve or play by the rules will be subject to mandatory mergers.

Abbas Kamarei, director of CBI’s Office for Bank Supervision said later that the CBI has plans to merge the remaining uncertified credit institutions and regulate their operations. Merging Afzal Tous Credit Institution with an authorized bank is on the CBI agenda.

 Divandari also sounded rather optimistic about the impact of the proposed plans for reforming banking and central bank regulations. “The two bills call for structural reforms in the sector and hopefully will bestow the needed authority to the CBI to start merging banks.”

The ‘Central Bank Bill’ and the ‘Banking Reform Bill’ are awaiting parliamentary approval.

The Central Bank Law – first passed in 1972 – was crafted to upgrade and modernize banking regulations. Improving the independence of the CBI, enhancing monetary policy-making and the CBI’s supervision over the money market are among its key goals.

The proposed legislation calls also for legal independence for the central bank in various aspects, namely organization and structure, budgeting and regulatory affairs, according to CBI vice-governor, Ali Akbar Komijani

Based on the bill, the CBI chief would be treated as an “expert” with enough authority to decide and implement monetary and banking policies.