Capital Boost Lowers Bank Maskan Risk

Recent measures taken by the administration of President Hassan Rouhani to thicken the capital cushion of state-owned banks have reduced the deposit risk of the housing sector’s agent bank, a member of the Parliamentary Committee on Civil Affairs said.

“The capital increase of Bank Maskan has reduced the risk of unexpected losses, while boosting its ability to allocate loans as a result of a general improvement in the bank’s conditions,” Seyyed Kamaleddin Shahriari was also quoted as saying by IRNA.

Noting that the bank is the only specialized lender active in the housing sector, he hoped that with the support of the administration and empowerment of the bank, Maskan will turn into a development bank in the foreseeable future.

If the necessary conditions are met and the lender turns into a development bank, it will be able to “move in line with activating different sectors” of the beleaguered housing sector, currently in a prolonged five-year recession, proportionate to its capital.

The Cabinet headed by President Hassan Rouhani voted in mid-January to obligate the Ministry of Economic Affairs and Finance to allocate 200 trillion rials ($5.2 billion) of excess funds to increase the core capital of state-run banks.

In late May, the director of Bank Maskan’s Department of Planning announced that because of the injection of 50 trillion rials ($1.33 billion) of capital, which made the total capital of the bank surpass 80 trillion rials ($2.13 billion), the lender has significantly boosted its capital adequacy ratio from the previous 6.45% to 18%.

Noting that this motion meets not only Basel I requirements, but also fulfils Basel II standards–a set of international banking regulations put forth by the Basel Committee on Bank Supervision–Mohammad Hassan Moradi had added that Bank Maskan might even proceed to increase its capital to 130 trillion rials ($3.46 billion) in the foreseeable future in line with the directives of the Central Bank of Iran and Majlis.

 Support for Homebuyers

As Shahriari outlines, the main hurdle facing people wanting to buy a home is lack of finance, which underscores the importance of Bank Maskan’s mission of promoting home ownership. With its support through capital increase, the government has “increased the bank’s ability in taking on more risk” and it now has the opportunity to better strengthen the market.

According to the MP, the capital increase will mean that Bank Maskan will be able to “change the conditions of loan allocation in favor of mortgage seekers” and help the lender realize its principle mandate of supporting homebuyers.

Emphasizing the role of CBI in approving any kind of loan allocation, the lawmaker said all changes in loan conditions for homebuyers depend on decisions made by the administration.

“Measures such as increasing the capital of the bank and increasing the limit for no-deposit home loans recently approved by the Money and Credit Council are telling of the government’s will to support Bank Maskan and exert maximum will on improving the conditions of the housing sector,” he said.

In order to increase home ownership among youth, the MCC, a decision-making body, voted to raise the limit of no-deposit home loans for couples in early May. The limit for such loans for couples is now 1.2 billion rials ($32,000) in the capital Tehran, which stood at 1 billion rials ($26,600) prior to the ruling.

MCC has also allowed Cooperatives Development Bank to offer housing loans, which used to be the prerogative of Bank Maskan and other non-specialized commercial banks. The final implementation of the measure, however, depends on banks’ resources.