Iranian authorities responsible for the banking crisis

Iranian authorities responsible for the banking crisis

Azerbaijan , Baku, March 11 /Trend T.Konyayeva/

In spite of outside reasons, the key inside factors for the exhaustion of banking reserves in Iran are that people in power abuse their privileges and manipulate the banking system, as well as the government funds dubious projects, U.S. Northeastern University Professor Kamran Dadkhah believes.

"People in power have easy access to banking facilities and do not feel obligated to pay back their loans," Dadkhah wrote Trend in an email. "Anyone who can borrow 1.5 billion dollar has to have connections to higher echelons of power."

On March 9, the Economic Commission of the Iranian Parliament issued a report saying the Iranian banking system's capital has been exhausted, the İLNA reported.

According to the report, 7.5 millions people are in delinquent debts to the Iranian banks, and they don't intend on paying them back. The total amount of the people's delinquent debts comes to 32 billion dollar.

Thus, one of the 10 Iranians has a bank debt. 40 thousands people's debt hits 100 thousand dollars per head. Seven out of nine debtors who owe 1500 billion tumans (approximately 1.5 billion dollar) evade repaying their debts. The report reads among debtors are large and small-scale entrepreneurs, brokers and civilians.

Based on the report of the Committee, the ratio of delinquent and charge-off loans of the Iranian banking system in September 2010 was 15.5 percent. This is far greater than the similar figure for the United States even during the recent economic and financial crisis. In ordinary times this ratio for the US banking system is around 3 percent.

The parliament report lists a number of factors contributing to the rise in charge-off and delinquent loans. They include: improvement in the procedures for identifying problem loans, loans to companies and projects purporting to have short gestation periods, weakness of the central bank in supervising and regulating banks, weakness in assessing creditworthiness of borrowers, international sanctions, the slow process of the judiciary system, and the international financial crisis.

According to Dadkhah, another factor, briefly mentioned in the report, is increase in liquidity by the government in order to finance projects with the aim of creating employment opportunities in a very short time span.

"Many of these projects have been dubious and border on scams," he said.

As regards a number of remedies to overcome the problem mentioned in the report, Dadkhah thinks they are mostly procedurals and include setting up a data bank, establishing a credit rating agency, better supervision of banks by the central bank, and government paying its debt to banks.

"These remedies would be useful if there is a fundamental reform of the economy," he added.

Secretary of the Working Group on the Development of the Iranian Bank System Huseyn Eyvazlu said they are planning to revise and to reform the state banking system and rules for regulations in banking sector.

"Reforms of the Iranian banking system including revision of laws and regulations, productivity and efficiency enhancement, customer service process improvement and structural transformation of the banking system are on the agenda of the Working Group," Eyvazlu told, Fars News Agency reported.

According to the Iranian President's decree, the implementation of this project starts next Iranian year (Iranian year begins on March 21), he added.

Dadkhah noted if the government and parliament are serious about addressing this and related problems, then a host of sweeping reforms should be carried out.

"These include privatization of the economy including the banking system, independence of the central bank, prohibition of government entities such as the Revolutionary Guard to engage in business activities, coming to terms with the United States and the international community and trying to lift the sanctions, and transparency in financial dealings backed by a free and inquisitive media," he said.

Dadkhah added the fact of the matter is that as long as the Iranian economy is run like a Mafia operation, problems such as the one mentioned in the report will afflict it.

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