Fictitious assets ailing Iran’s banking sector
Tehran, Iran, Nov. 3
By Mehdi Sepahvand – Trend:
Years-long accumulation of fictitious assets has brought Iran’s banking sector to the verge of bankruptcy.
At some point of time, most banks in the country started to leave their function of giving facilities to the margin and venture directly into economy, a banking analyst told Trend on condition of anonymity November 3.
He noted that lack of ample control by the Central Bank of Iran left the way open for banks to invest in various sectors way more than they were legally allowed to.
"Much that is there in the financial statements of banks has no real existence out there," the expert said.
"They started buying companies or real estate, especially the latter one when real estate grew much more profitable than other sectors. The same they did about currency and gold at certain points of time when these markets looked lucrative."
"Then they distributed the wealth they gained from there among shareholders. Now, however, they are literally facing bankruptcy because of a general economic downturn due to which much of their assets have suffered great depreciation."
"Also, there is much outstanding debt by entities who are out of reach of the banks. The only thing that the bank can do about them is to state higher and higher credit from the debtors, but it is not able to liquidate the debt."
On November 2, Mohammad Reza Pourebrahimi, the chairman of the Parliament’s Economy Commission, complained that banks in Iran are "dysfunctional".
He said the banks used to hide their dysfunctionality behind high inflation rates by investing in various profitable sectors.
"Now that inflation has been reined in, data that has been revealed shows that banks are dysfunctional and there is great deficit," the MP noted.
In august the Central Bank of Iran ordered banks to lower their interest rates from around 22 to 15 percent.
This followed the government’s achievement in bringing down inflation from over 40 percent in 2013 to about 8 percent in 2016.
The banks started resisting the order. The Central Bank responded by vowing legal action if the banks refused to comply.
Masoud Karbasian, the new minister of finance, in late October said he was going to change some heads of banks in matter of days. He also said banks would be given orders to sell their assets.