Economy, Business And Markets

Unauthorized Credit Institutions Face the Axe

Unauthorized Credit Institutions Face the AxeUnauthorized Credit Institutions Face the Axe

The Central Bank of Iran plans to sort out the affairs surrounding “14 unauthorized credit institutions” by the end of the year (March 20), said CBI Governor Valiollah Seif on Sunday.

Earlier, central bank officials announced that 7,000 unauthorized credit institutions operate across the country, some of which has obtained work permits through the ministry of cooperatives.

Although the unregulated monetary market accounts for 15 percent of the country’s economy, surprisingly, they do not fall under the supervision of the CBI, Seif said addressing the biggest conference ever held on economy in Tehran since the 1979 Islamic revolution.

CBI now intends to organize the unauthorized institutions and if the efforts fail “it will have no choice but to close them down,” he said. “The legal cases for unauthorized institutions are now underway.”

On the sidelines of the economic conference, Hamid Tehranfar, vice governor for banking supervision affairs, said that the CEOs of eight credit institutions were also be dismissed.

After a series of investigations, a number of executives and board members have been disqualified and dismissed, the official said. “Hereon, the dismissed officials will not be able to hold other banking positions anywhere within the banking system.”

 Loans Provided by Banks

In the first eight months of this fiscal year (March 21-November 21), 2.06 quadrillion rials $58 billion at market rate) in loans have been offered by commercial banks, 60 percent of which was used to finance corporate cash flow, Seif said, adding that the percentage rises to 80 for the industry and mining sector.

Furthermore, the official added that 200 trillion rials ($5.6 billion) of participatory bonds (fixed income fixed price bonds) exist within the banking system, nearly 160 billion rials ($4.5 million) of which have reached maturity and the remaining will come to maturity by the end of the current fiscal year (ending March 21).

The government also aims to reduce compulsory loans – loans commercial lenders were mandated by the government to pay without cost-benefit considerations – and this year’s budget bill has been prepared in line with the same goal.  

The official stated that the CBI “will control money supply” and seek to direct it towards the manufacturing sector. Money supply rose 12.7 percent during the first eight months of the current year. This shows a slowdown in money supply increase compared with the same period last year. The figure stood at 15.2 percent in the same period of last year. Thus, according to Seif, the policy has not been a contractionary one, as the money multiplier rose 4.5 percent, leading to an actual rise in money supply, although monetary base slipped 1.6 percent during this period.