Spotlight on Major Lenders Over Delay in AGMs

The annual general meetings of major banks and credit institutions have run into a snag, as lenders struggle to incorporate the latest standards introduced by the Central Bank of Iran into their balance sheets, which issue has overshadowed Iranian lenders for nearly two years.

Even as the first month of summer ended on July 22– a time by which bank shareholders' meetings should also have ended–only nine banks have held their meetings so far, meaning that 20 banks and three credit institutions are still lagging behind, IBENA reported.

Bank Mellat, Tejarat Bank, Middle East Bank, Ayandeh Bank, Qarzol-Hasaneh Mehr Bank, Ansar Bank, Day Bank, Bank Hekmat Iranian and Iran-Venezuela Bank have held their meetings by the deadline.  

However, other lenders, including some of the biggest names in the Iranian banking system, have yet to convene their meetings. Bank Melli Iran, the nation's biggest lender, Bank Keshavarzi which is the agent bank of the agriculture sector, Bank Saderat, the Export Development Bank of Iran and the Bank of Industry and Mine are among them.

The drama surrounding banks' balance sheets began when CBI decided to upgrade their balance sheets and bring them into conformity with International Financial Reporting Standards. Some opposed the measure as premature, given banks' multi-year isolation during the period of sanctions while the global financial scene underwent significant changes.  

In the last two years (ending March 20, 2018), the main reason behind the delay is a disagreement between the Central Bank of Iran and the Audit Organization of Iran affiliated to the Ministry of Economic Affairs and Finance, both of which demand their own criteria when it comes to financial statements.

The CBI directive regarding banks' balance sheets was officially issued last July and only days before the deadline for the shareholder's annual general meetings.  

In August 2016, Director of CBI’s Office for Banking Supervision Abbas Kamarei had announced that CBI, the Economy Ministry and AOI have agreed on the new framework for banks’ financial statements and their audit.

However, as the head of Majlis Economic Commission, Mohammad Reza Pour-Ebrahimi, confirmed in early August, the issue continues to split the two entities.

Another Reason

While the dispute over how bank balance sheets must be devised has been a major reason behind the delay in shareholders' meetings, a member of the Association of Certified Public Accountants tells a different story.

In its directives to the banking system, the central bank obligated banks to provide it with an early and final draft of the balance sheets at least one month before they hold their general meetings.

Abbas Vafadari claims that after reviewing the drafts, the central bank decided that a number of banks have not made sufficient provisions for non-performing loans and hence the delay in their shareholders' meetings.

"In such a scenario, either the net revenues of the bank go down, or profits turn into losses and losses go higher than profits. Therefore a challenge is created and the banks engage in negotiations with CBI," he told Fars News Agency.

While he supported the measure to obligate the banks to make sufficient provisions for bad loans, Vafadari said it must be noted that some lenders might not have made enough provisions for years and forcing them to fill that gap immediately would have grave consequences for them.

"That would create radical changes in the financial statements of banks and that is why heavy losses have been registered in their financial statements in the past two years," he added.

Successful Meetings of Banks

Among the nine banks that held their annual general meetings on time, Bank Mellat appointed its board of director members for two years and announced 3.983 trillion rials ($104.8 million) in profits while the Middle East Bank approved a 1-trillion-rial ($26.3 million) paid-up capital increase.

Bank Hekmat Iranian approved its core capital at 4 trillion rials ($105.2 million) and the shareholders of the joint Iran-Venezuela Bank stressed that they wish to direct their policies for the current year toward turning the bank into a multinational lender.