Economy, Business And Markets

Bank Melli CEO Raps Parliament

Bank Melli CEO  Raps ParliamentBank Melli CEO  Raps Parliament

Around 60 percent of Bank Melli’s funds are inaccessible, said the bank’s CEO Abdonnaser Hemmati, as he explained the cause for the blockage.

Melli has one quadrillion rials ($28.5 billion at market rate) of funds but can only utilize $11.4 billion of that sum, Banker News reported the CEO as saying.

The head of Iran’s largest lender also criticized “compulsory facilities” – loans state-owned banks were forced to grant at cheap rates to government initiated schemes. Melli and other state-owned banks have to provide these loans at low interest rates, while they have to pay 22 percent on deposits annually.

Bank Melli has given 10 trillion rials ($285 million) of marriage loans at 14 percent interest. These loans were paid by parliamentary or government order, despite being uneconomical and jeopardizing the financial health of the bank.

The lender’s financial health has been called into question due to the large amount of toxic debt on its balance sheet, some of which are due to “compulsory” lending and some due to ongoing debt defaults from its customers. The Central Bank of Iran is pushing Bank Melli along with other state-owned banks to offload their non-performing loans (NPLs) from their books to reinvigorate their status. However it has been difficult for state banks to offload such debts.

 Regulation and Ownership

The charters of state-owned lenders should be changed to resemble private lenders, in order to make them competitive, said the CEO. Current charters of state-owned banks do not lend well to competition.

The CEO said “the only difference between government-owned banks and privately-owned banks is that the state owns a stake in these banks.”

State-owned lenders have their budget determined by the parliament. Thus the lenders are unable to change it based on their needs and strategy, rendering them powerless in dealing with changing business conditions.

“Why should the parliament ratify the budget for state-owned banks?” Hemati asked.

 Information Technology

Due to being state-owned, Bank Melli has lagged behind other banks in offering new services including e-banking. The bank is trying to improve its practices but progress has been slow.

The bank needs to upgrade its services but as it is bound by the rules of parliament, no budget has been allocated to them for upgrading their IT infrastructure in the current national budget, and this is why they are falling behind, says Hemati.

 Useless Branches

Another challenge faced by the bank is paying government salaries. According to the Tehran-based lender’s CEO, Melli processes the salary payment of 70,000 government employees through its branches. But one third of its branches are inefficient. “We can’t close them, because once they are closed down, MPs will cry faul.”

Running bank branches is expensive worldwide. That is why most banks have moved away from running branches and instead opted for e-banking. “It is better to close a bank branch whose expenses outpace its income,” said Hemati.

The lender handles most of the government’s financial transactions, including but not limited to taxes, fines, utility payments and government employee salary payments.

Bank Melli is the first national Iranian bank. It was established in 1927 by a parliamentary order and since then has consistently been one of the most influential Iranian banks. It is now the largest commercial retail bank in Iran and the Middle East with over 3,300 branches and 43,000 employees.


On top of its own internal problems, the bank is under US sanctions which have cut the lender from foreign operations and reinsurance.

The United States imposed unilateral sanctions against Iranian banks, on Oct. 25, 2007. Bank Melli was included on the sanctions list, on the grounds that, besides its other customers, it provided financial services to Iran’s nuclear energy program. In a statement published on Bank Melli’s website, the bank refuted US allegations and categorically has denied that it has ever been involved in any “deceptive banking practices”.

Iran is under the most stringent sanctions regime, placed by the UN, US and the EU in an attempt to restrain its nuclear energy program. Iranian officials are now negotiating with representatives of the EU, US, Britain, France, Germany, China and Russia to work out a deal which would lead to the alleviation of these sanctions in exchange for limiting Tehran’s nuclear activities.