CBI Focuses on Banking Trouble Areas

Governor of the Central Bank of Iran Valiollah Seif has outlined four troublesome areas for the Iranian banking system and what is currently being done to effectively address them.

"In order to rectify the shortcomings of banking system, the lack of balance between incomes and expenses, imbalance in assets and arrears, implementation of banking standards and execution of regulations related to fighting money laundering must be given special attention," Valiollah Seif was quoted as saying by the website of Bank Parsian, at the headquarters of which Seif was speaking.

The official began by saying that banks must stop engaging in "destructive rate wars".              

Iranian banks are now doing better than they did a few years ago, but a lack of balance between their assets and arrears still persists, he added.

“For example, with the intervention of CBI in the market, it managed to decrease the interbank rates from 28-29% to around 20%,” the official said, adding that it would be better if “we assess the situation meticulously to institutionalize market balance”.

The high ratio of non-performing loans over total loans challenging the embattled banking sector was up next, with Seif saying CBI provides a roadmap and expects the banks to do the rest.

“Recovering NPLs in the banking system is the best activity the banks can play a part in,” he added.

Seif, who also heads the Money and Credit Council, stressed the importance of levying fees for services that are currently offered almost free of charge in spite of establishing electronic banking.

In reforming their balance sheets, the CBI chief advised banks to conform to international standards, saying an 8% capital adequacy ratio has been devised, but the next goals must be achieved gradually and with the collaboration of state-owned and private banks.

  Status of Banks

Seif said major international banks are still wary and reluctant to work with the Iranian banking system, even though sanctions have been removed as a result of the nuclear accord.

In order to instill trust and curb their risk, “correct planning” will be needed and banks that move toward reducing operating risks will reap the reward, he added.

Illegal credit institutions proliferating before President Hassan Rouhani’s government came to work and effectively held 25% of the total liquidity of the country were another topic referred to by the high-ranking official.

He said they intensified the dilemma of high interest rates, as they were outside the realm of CBI’s oversight, stressing that limiting their activities and closing a vast number of them “was definitely very effective in curbing interest rate fluctuations”.

In the event, where the near-field communication (NFC) technology for banks was officially unveiled, Seif also spoke of the New Model of Supervision Over Banks that aims to exert better oversight and rate Iranian banks based on the level of risk they pose.

“Banks with better discipline and safer structures will require less supervision,” he said.

Seif had announced last week that the oversight regime will “become operational by the end of the current month” on May 21.