Iran plans to set up ‘bad bank’ to curb ‘bad loans’
Baku, Azerbaijan, Feb.19
By Fatih Karimov - Trend: The Central Bank of Iran is studying a plan to set up a 'bad bank', tasked with buying the bad loans of other banks with significant nonperforming assets, Shargh Persian language daily reported on Feb. 19.
Saeed Arianpour, the managing director of the company for collecting non-performing loans, told the Fars News Agency that the plan has been studied by the Central Bank for a year.
The bad bank will be reportedly state-run.
Bad banks are set up to buy the bad loans of a bank with significant nonperforming assets at market price. By transferring the bad assets of an institution to the bad bank, the banks clear their balance sheet of toxic assets but are forced to take write downs. Shareholders and bondholders stand to lose money from this solution (but not depositors). Banks that become insolvent as a result of the process can be recapitalized, nationalized or liquidated.
The governor of the Central Bank of Iran, Valiollah Seif, has confirmed that the national banking system's bad loans has reached 800 trillion rials (about $32 billion), the Mehr News Agency reported on Jan. 8.
Many factors are involved in the bad loans, such as the international sanctions and mismanagement in the banking system, Seif said.
The Central Bank has set up a special working group to follow up the case and collect the debts, he noted.