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Budget Bill Criticized Over Capital Raise for Banks

Budget Bill Criticized Over Capital Raise for Banks Budget Bill Criticized Over Capital Raise for Banks

T he research center of the parliament issued a report Sunday on how the government has proposed to raise capital in state-owned banks in the budget of the next fiscal year (starting March, 21).

In next year’s budget bill, the government seeks to increase capital of the banks in a bid to make business compatible for them, which officials hope provide financing for the already financially struggling manufacturing units across the country.

The budget bill suggests that surplus oil revenue and the revenue earned from privatization can be a source to raise the capital.

According to Banker News, in addition to reviewing the economic aspect of increasing bank capital and scrutinizing their congruity with major government policies, the report also offers solutions to optimize the related issues in the budget.

Increasing capital of state-owned lenders, according to the report, can only leave a beneficial impact if the structures and performance of the banks are also overhauled.

The report does acknowledge, however, that such a process would surely be long-term.

As performance indicators naturally cannot improve several times during a single year, capital increase should thus also be gradual and proportionate to their advancements, the report says.

Although the real economy can also benefit from capital increase, the fact is that in the past few years contrary to the “resistance economy” -- a set of policies proposed by Leader Ayatollah Seyed Ali Khamenei to counter western sanctions, promote domestic growth and reduce consumption – no fundamental changes have been implemented to revamp banking structures.

Increasing bank capital without reforming the structures of the banks could bring about outcomes uncalled for, the report warns. In other words, increasing bank capital without previous restructuring could in fact be tantamount to charity. As long as the banking structure remains the same, the measure could prove counterproductive, according to the report.

The research center calls for a step by step approach with the collaboration of a committee comprising of multiple entities specifically the Central Bank of Iran (CBI), the ministry of economic affairs and finance, and the Supreme Audit Court.

The center also suggests that the capital issue could be better addressed in a different bill, already proposed to the parliament, to eradicate obstacles on the way of manufacturing. The center argues that the latter bill, contrary to the budget bill, is not limited time-wise and can be monitored more effectually.

The report also criticizes the government for not specifying a clear budget it needs for raising the capital of banks.

 

Financialtribune.com