Risky Banks Under CBI Radar

Central Bank of Iran is using a new system of supervision in which risky banks are being closely monitored at a time when the fallout from shadow banks has beset the financial system, a CBI official said.

“CBI has identified risky banks and via the supervision system and is keeping a watch over their income and expenses” the official told Mehr News Agency.

According to the source, some banks have been put on notice for offering higher-than-usual interest rates as it would put their financial position in a more critical condition.

The source added that the supervisory measures are meant to prevent any further crisis in the financial sector attributing the current state of the banking system to weak monitoring in previous years.

CBI, under the governor Valiollah Seif, has been striving to kick-start major reforms in the struggling banking system, including introducing the Banking Reform Bill and the Central Bank Bill which the International Monetary Fund believes will be helpful, as they will provide the tools to deal with distressed lenders and enhance effective supervision over them.

The two bills, however, have yet to find their way to the parliament.

Even though a handful of banks are fighting formidable challenges, including unhealthy balance sheets and thin capital cushions, the recent ruckus surrounding uncertified credit institutions has created mounting concern among the people who have invested in banks and credit institutions.

The uncertified credit institutions began their activities without obtaining a license from the central bank and got permits from other organizations such as the Ministry of Cooperatives, Labor and Social Welfare and the Law Enforcement Forces. Over the years they lured the public by offering sky-high interest on deposits.

They proliferated during the tenure of the former administration and have continued to be the bane of banks. It is reported that the unruly lenders now hold 25% of the entire liquidity.

The government has taken steps to address the issues facing troubled banks, including overhauling the supervisory regime governing the banking system and taking concrete steps to clean up the balance sheets of banks. But there are still real and valid concerns about the banks’ troubled credits and stressed loans.