Economy, Business And Markets

Deadline for Ending Lenders’ Non-Banking Ventures

The minister of economy has called on the capital market to assist with the process and aftermath of putting an end to the non-banking activities of financial institutions
Economy Minister Masoud Karbasian (R), and director of Securities and Exchange Organization, Shapour Mohammadi.
Economy Minister Masoud Karbasian (R), and director of Securities and Exchange Organization, Shapour Mohammadi.

Minister of Economic and Finance Affairs Masoud Karbasian announced that Iranian banks have about eight months to end their non-banking activities for which they have constantly come under fire.

According to Karbasian, banks will need the help of the country's capital market to shed their non-banking ventures.

"Based on the law on removing hurdles in the way of production, banks must stop their non-banking activities by the end of the third month of the next fiscal year [June 21, 2018] and it is my serious expectation that the stock market must assist with this process," Karbasian was also quoted as saying by the official news portal of the Economy Ministry.

Emphasizing the importance of the role of capital market, the minister noted that banks are often the first in line to fund different sectors, but they are unable to go beyond a certain capacity as they face a credit crunch.

"My first decision and duty is to eliminate the non-banking activities of banks and to do so, they must link up with the capital market," he said.

Karbasian made the remarks during a meeting with the chief executives and board of directors of the country's four stock markets, namely Tehran Stock Exchange, Iran Mercantile Exchange, Iran Energy Exchange and Iran Fara Bourse Company, as well as director of the Securities and Exchange Organization.

Most banks are currently cut off from the capital market, as they struggle to finalize their balance sheets and hold their annual general meetings on time, a two-year affair that is partly rooted in a disagreement between the Central Bank of Iran and the Audit Organization of Iran over who gets to set financial reporting standards.

But Karbasian and CBI Governor Valiollah Seif have since reached an agreement that officially puts CBI in charge, meaning that banks could potentially have their symbols in the capital market unfrozen in the foreseeable future.

The administration of President Hassan Rouhani has repeatedly stressed the importance of returning financial institutions to their original mandate, and obligated them to shed their excess assets and stop activities in the ailing housing sector.

Role of Capital Market

In his meeting with the heads of stock markets, the economy minister conceded that recent fluctuations in foreign exchange rates have made waves in the currency market, but said the capital market remains stable.

The Iranian currency market recently reacted in anticipation of US President Donald Trump's decision to decertify the nuclear deal with various currencies gaining against rial.

Reiterating his call for the capital market to play a more serious role in financing the country's projects, the minister noted that the market must issue $3 billion worth of foreign bonds as per the law, but has yet to offer even one cent.

"To achieve the 8% average growth rate projected in the Sixth Five-Year Development Plan (2017-22), a comprehensive capital market development plan must be pursued with a stress on designing various financial instruments," he added.

Karbasian also called for working in line with instilling corporate governance in exchange companies, allowing the people to participate more to gradually decrease high bank deposit rates and promoting the capital market for investments, increasing transparency in the capital market and evaluating currency fluctuation risks.

Digitalizing capital market technology infrastructures, connecting the Iranian capital market to markets of other nations and allocating banking loans to users of mercantile exchange were other issues stressed upon by the minister.

At the meeting, SEO chief Shapour Mohammadi outlined a report on the current conditions of the Iranian capital market.

According to the official, since the beginning of the current fiscal year in March, the capital market has registered a 12.5% growth while the over-the-counter Fara Bourse has achieved an 8% growth.

"We have also witnessed an 18% growth in mercantile and energy exchanges," he said, adding that the collective value of all the markets so far this year has been 1.089 quadrillion rials ($27.2 billion).

As Mohammadi says, a total of 327 companies have been accepted into the capital market while the number of firms entered into the over-the-counter market has risen to 95 from 87 at the beginning of the year.

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