Shadow Banks’ Drama Ending

The lengthy saga of uncertified credit institutions and the drama surrounding them will come to an end by the end of the current fiscal year in March 2018, the Central Bank of Iran’s deputy for supervisory affairs said.

“A small number of illegal financial institutions remain and the work to regularize them will be completed this year,” Farsahd Heydari was also quoted as saying byBanker.ir.

The illegal credit and financial institutions and their hold over the informal money market and banking system gained momentum during the tenure of the former president, Mahmoud Ahmadinejad, which have proven extremely problematic for the current government repeatedly forced to bail out the depositors.

These institutions have also been recognized as one of the main reasons hindering a further decrease in bank interest rate that currently stands above 15%, while CBI has stressed that it needs to have a gap of just 2-3% with the inflation rate, currently in single digit zone.

In March 2014, eight illegal bankrupt credit institutions and cooperatives based in Khorasan Razavi Province, including Fereshtegan, Ferdowsi, Badr Toos and Al-Zahra, were merged under CBI supervision to form the certified Caspian.

According to Heydari, seven of these eight institutions were organized by the end of the previous fiscal year (ended March 20, 2017) and the evaluation of their assets was completed by the end of the second month of the current year on May 21.

Depositors with a maximum 100 million rials ($2,653) in their bank accounts would be prioritized by Caspian for reimbursement, which is also being urged to attend to other customers in coordination with CBI and the judiciary.

The CBI deputy said the disbanded Fereshtegan has over 450,000 depositors, of whom about 400,000 have deposits of under 100 million rials.  

“According to our assessment, about 17 trillion rials ($453 million) of the assets of this cooperative have so far been identified, with another 14 trillion rials ($373 million) being in loans,” he added.

Heydari noted that by May 29, all deposits of under 100 million rials will be indemnified, CBI will then move toward clearing deposits of up to 200 million rials ($5,300) and eventually deal with deposits of higher amounts.

“Depositors can invest in the Caspian institution or choose to get refunded for their deposits,” he said.

A shift in tone on investment in credit institutions came when CBI Governor Valiollah Seif announced on state TV in April that depositors should take responsibility for their investment decisions and that a license from CBI does not guarantees a safe and risk-free return.

“The higher the interest, the higher the risk,” Seif declared.