Troubled Banks Unleash Rout at TSE

The stock market was quite eventful during the Iranian month of Bahman (January 20-February 18).

Several banks, which were barred from trading, returned to Tehran Stock Exchange, the benchmark index broke below the 78,000 support level for the first time in three months and all initial public offerings were suspended until the Iranian yearend (March 20).

TSE’s main index TEDPIX plunged by 1,782.9 points or 2.24% during the period to end at 77,599.1. The over-the-counter Iran Fara Bourse’s main index, however, gained 7.8 points or 0.92% to close the month at 852.8.

Over 19.84 billion shares valued at $1.173 billion were traded at TSE. The number of traded shares dropped by 1.29% while monthly trade value rose by 16.1%.

TSE’s First Market Index lost 1,351.8 points or 2.3% during the month to stand at 55,235.2 and the Second Market Index dropped 3,295.9 points or 1.96% to reach 164,288.1.

At IFB, more than 5.4 billion securities valued at $1.67 billion were traded, indicating a 1.8% and 105% surge in the number of traded shares and trade value respectively.

  Giants Tumble, Market Trembles

TEDPIX’s first fall from grace came in January 24, as the main index nosedived by 1.28% and landed at a three-month low of 78,249.1. This was the benchmark’s biggest decline since November 9, after news broke that Donald Trump was elected as the 45th president of the United States.

The main factor behind the slide was the return of Bank Mellat to the market after a near seven-month hiatus.

Shareholders started selling just as the market opened and the bank’s shares dropped 37.51% in value to 1,206 rials per share, wiping half of its value in one day.

Tejarat Bank followed Mellat’s footsteps and resumed trading on February 1 with no set cap and recorded a 33.76% drop in share value to 665 rials per share. Consequently, TEDPIX dropped by 0.72%.

Market experts believe such downturns are indicative of more routs to come, as Bank Saderat and Post Bank of Iran also announced their intention to return to trading.

PBI’s shares were expected to be re-offered last week, as announced by the bank’s managing director, Khosro Farahi. The lender has not set any new date for trade resumption yet.

The commercial bank owned by the government has more than 12,000 branches and sub-branches across the country. The bank’s main task is to offer services in remote areas. It was recently selected as the agent bank for financing rural businesses.

Bank Saderat has also recently published its updated nine-month financial statement and is expected to get back to TSE in early March. The new statements forecast a 753-rial loss for each share, reaching up to 27 trillion rials ($710.52 million) in total losses.

  Unruly Banks

The Central Bank of Iran and the Securities and Exchange Organization had suspended Bank Mellat, alongside Saderat, Tejarat and Post Bank of Iran’s ticker symbols since July, arguing that commercial banks had failed to comply with International Financial Reporting Standards and provided misleading reports.

International Financial Reporting Standards is a single set of accounting standards, developed and maintained by the International Accounting Standards Board. These standards are capable of being applied on a globally consistent basis by developed, emerging and developing economies. They provide investors and other users of financial statements with the ability of comparing the financial performance of publicly listed companies on a like-for-like basis with their international peers.

The authorities maintained that their main intention of barring the banks from trading was protecting shareholders from losses. They say Iranian banks have weak transparency that must be addressed before it affects the whole banking system.

“Opaque banks will take enormous risks that endanger shareholders, industry and the economy alike,” Financial Tribune’s sister publication Donya-e-Eqtesad quoted CBI Governor Valiollah Seif as saying in an address at a banking conference in Tehran.

“Only if transparency is achieved can banks be held accountable to the regulator and the public.”

Transparency calls for banks releasing accurate, relevant, complete and prompt information and reports that can be easily supervised by the regulator.

This is while most Iranian commercial banks and credit institutions do not fully comply with CBI’s interest rate regulations.

Banks go through complicated procedures to mislead the regulator since they are in a dire financial situation and need to attract deposits. This is while CBI is pushing for increased lending.

To resist the rising pressure, lenders came up with solutions such as offering interest rates higher than the 15% cap and keeping a portion of the loan as collateral in case of default, causing the actual interest rate to rise and making loans more expensive.

Consequently, cash-strapped banks give out dividends that have no real financial backing, since unpaid loans and debts are also used in profit calculations.

They will ultimately have to change course and the market downturn is inevitable in a “necessary surgery”, according to Ali Khosroshahi, Amin Investment Bank’s senior asset management and investment analyst.

  No More IPOs

The Securities and Exchange Organization announced last week that all IPOs are suspended until the Iranian yearend in an attempt to support investors and prevent liquidity flight.

“The head of SEO [Shapour Mohammadi] believes that public offerings must be in line with the [current] market condition,” said Mohsen Khodabakhsh, an official with SEO.  

Experts believe SEO’s decision could be related to the heavyweight Barkat Pharmed Company’s last week IPO.

According to market analyst, Ali Nikougoftar, Barkat’s “heavy” IPO caused a sudden flight of capital from the market as it indirectly pressured other investors to sell.

“Stopping IPOs is in fact the only thing SEO can do right now [to curb further capital flight],” the analyst told Financial Tribune in a telephone interview.

However, the analyst emphasized that such measures will not be entirely effective, as the seductive debt market with its high rates of return is the main cause of the issue.