The Central Bank of Iran has announced new guidelines for divesting non-financial assets of banks and credit institutions.
The guidelines are as per provisions of the law to Remove Barriers to Competitive Production and Improve the Financial System of the Country.
According to a notice on the CBI website, if a bank or credit institution fulfills all the requirements and formalities for divesting assets it will be exempt from penalties stipulated by law.
However, there should be valid proof if a lender’s failure to complete the divestment process was due to a force majeure or "unavoidable reason” that will be confirmed either by the CBI or Securities and Exchange Organization.
As per the guidelines "the value of banks' excess or non-financial assets must be determined by certified judicial assessors".
In addition, the divestment should be undertaken only via auctions. If lenders fail to sell assets in the first auction they need to hold at least three more auctions at regular intervals in one month. As for the terms of sale, assets can be sold to buyers in cash or installments.
The law to Remove Barriers to Competitive Production and Improve the Financial System of the Country came into force in June 2105. Accordingly, banks and credit institutions are obliged to annually divest at least 33% of their non-financial assets over three years. The obligation also covers divestment of shares in listed companies and banks can use the earnings to boost capital.
If they fail to abide by divestment rules, they have to pay 28% of their income from non-bank activities as tax during the first year of the implementation of the law. In subsequent years, 3 percentage points will be added to the mentioned rate until it reaches a maximum of 55%.
Despite the clear legal framework divestments of non-financial assets of banks have moved at snail's pace.
Selling nonfinancial assets are in line with obligations announced by the government requiring banks to give up non-bank operations and focus on their original mandate, namely lending to manufactures and businesses.
Despite calls for action from many quarters to end non-bank activities, it appears that many lenders have trouble finding customers for their property, mainly in expensive uptown areas in big cities.
The government wants lenders to concentrate mainly on funding the production sector rather than owning or managing companies, and in some cases involvement in the lucrative, but controversial, housing sector.
Banks and credit institutions reportedly own 1,000 trillion rials ($4 billion) in nonfinancial assets, which have piled up over the years due to impaired loans, bad debts, settlement of government debts to banks, branch closures and failed investments.
