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Mergers could help the beleaguered banking sector become leaner and shed its excess assets.
Mergers could help the beleaguered banking sector become leaner and shed its excess assets.

Parliamentary Commission Supports Merger of Banks

Majlis Economic Commission has voiced its support for the merger of Iranian public and private banks
The merger of Iranian banks can play an important role in plumping up their capital cushions

Parliamentary Commission Supports Merger of Banks

As the possibility of mergers in the Iranian banking system strengthens, a senior lawmaker has lent his support to the proposed measure, saying the move could help banks upgrade to international standards.  
Mohammad Reza Pour-Ebrahimi, who heads the Majlis Economic Commission, has stressed that banking consolidation would be within the confines of the law, ICANA, the official news outlet of the Iranian Parliament, reported.
"At present, the nuclear deal has created a capacity to engage in foreign transactions with international banks, but the banking system has limitations that prevent it from using those capacities," he said.
Lack of a suitable capital adequacy ratio in the banks is one of the reasons for the refusal of major foreign banks to work with their Iranian peers, "therefore the merger of Iranian banks can play an important part in plumping up their capital cushions".
The official noted that the government does not directly decide on the merger of private banks and the Central Bank of Iran does not hold the mandate to create obligations regarding the matter.
Pour-Ebrahimi explained that according to the Trade Law, private banks' shareholders are entitled to decide on the merger, which CBI can approve or disapprove.
However, since the General Assembly of public banks is controlled by the government, the merger of state-run lenders must be undertaken through an official government directive.
"The legal capacities needed for bank acquisitions exist in the Trade Law," he said.
CBI Governor Valiollah Seif confirmed the possibility of merging banks a few days ago, saying it will help the financial statements of Iranian banks comply with international standards.
"Any decision for consolidations would first be made by the shareholders of the banks, but this option is present in CBI's roadmap for banks as part of the vision to standardize the financial statements of banks and the shareholders might welcome this," Seif added.

The merger could help the beleaguered banking sector become leaner and shed its excess assets after a period of overinvestment and costly maintenance put heavy strains on banks' balance sheets.  

Caspian Drama

On a different note, Pour-Ebrahimi referred to the ongoing saga of regularizing uncertified credit institutions, warning the central bank to act swiftly to end the ordeal caused to depositors by these institutions.  
"If CBI does not come up with a clear and scheduled plan within the framework of laws and regulations to organize the informal money market by the end of the current week [on June 2], the commission will invoke Article 236," he said.
Article 236 of Majlis bylaw states that if at least 10 members of the parliament or any of its commissions announce that the president, a minister or any officials within their subordinate entities have "not adhered to norms or have violated or refused to implement the law or have executed it incompletely", proceedings leading to the official's impeachment can start.
Because measures undertaken by the central bank regarding the Caspian institution have been insufficient, said Pour-Ebrahimi, "another meeting will be convened to review plans regarding the organization of this institution and other institutions during the current week".
The Caspian credit institution was formed after eight bankrupt illegal credit institutions were merged under the supervision of CBI in line with organizing the unruly illegal money market and reimbursing people who had made deposits with the institutions.
Days ago, Farshad Heydari, CBI's deputy for supervisory affairs, promised that the drama surrounding the uncertified institutions will end by the end of the current fiscal year in March 2018.
“A small number of illegal financial institutions remain and the work to regularize them will be completed this year,” Heydari added.
In conclusion, Pour-Ebrahimi said what CBI has done so far does not fulfill its commitments in addressing the unofficial money market, stressing that in its mandatory end-of-the-week report, the central bank "must mention the amount of deposits, how they will be returned and how the people will be able to claim their rights".

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