Economy, Business And Markets

CBI Denounces Lenders’ Overdraft

CBI Denounces  Lenders’ Overdraft
CBI Denounces  Lenders’ Overdraft

A top central bank official on Sunday denounced commercial banks' overdraft from the central bank as "inconveniencing."

"Given the fact that the central bank is now facing lack of resources, the commercial banks should avoid providing loans for the applicants whose business plans are not economically justified," said Akbar Komijani, deputy governor of the Central Bank of Iran, addressing the second day of a major economic conference held in Tehran.

In the first eight months of the fiscal year (starting March 21, 2014), the ratio between excess reserves and the aggregate amount of deposits has been on the downslide, witnessing a 42 percent decrease, FNA quoted him as saying.   

“Not only have the banks been unable to conform to necessary reserve minimums, their tendency towards over drafting is on the rise,” he added.

The money supply stood at 5.94 quadrillion rials ($220 billion) in the last fiscal year. It has been increased to 6.8 quadrillion rials now after the central bank absorbed 940 trillion rials in deposits at the credit institutions recently authorized by the regulator, the official said, calling the money supply level reasonable.

The official said the affairs of the credit institutions had not been officially monitored till now. “In the course of recent CBI inspections of illegal institutions, however, estimates of wrongdoings have been made and when the time is right and the exact amounts and data are available the information shall be made public.”

CBI Governor Valiollah Seif also reaffirmed the rhetoric about the need for more scrutiny by lenders when giving loans.  “Requests for loans must undergo a filtering process and clear-cut standards should be drawn according to which applicants’ requests will be processed,” said the governor at the end of the conference.

Last month, Seif said the central bank is working towards such standards. The regulator has directed commercial lenders to only finance the firms whose equity is over 25 percent of their assets and have audited books. “This is a broad filter, but a filter nonetheless.”

“These measures reduce the number of firms which can get financing,” Seif said in another conference last month. “We should let firms fail if they are losing money. These firms should be closed down or restructured into profitability.”

On Sunday, Seif said that the regulator plans to sort out the affairs surrounding “14 unauthorized credit institutions” by the end of the year.

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

In order to reduce violations from monetary regulations, all credit institutions and newly established banks are now required to submit their financial information to the CBI on a weekly basis.

Komijani also dismissed speculations about the government running a deficit, vowing that the government will meet financial needs proposed in the next year’s budget bill. “In case of budget deficit, the government would not be able to recourse to the central bank for loans and the CBI shall not monetize the deficit.”