Bankers Prefer CBI Fix Banking Reforms

Kourosh Parvizian, head of Private Banks and Credit Institutions Association in a talk with ILNA expressed the concern of bankers regarding flaws in the CIBB. “This is a unilateral measure because the views of banking experts have not been included in the bill,” he complained.  

"We have asked the Majlis speaker to allow Islamic banking laws to be drafted by the CBI, reviewed by the Cabinet and finally debated in the Majlis. This is a [logical] procedure experts in the banking industry want,” Financial Tribune quoted him as saying.

The CIBB is an umbrella term that includes three sets of banking regulations, namely Islamic Banking Bill, Central Bank of Iran Bill and an initiative to establish the Islamic Republic of Iran Development Bank. The package also outlines a scheme for rewriting the decades-old banking laws seen as a hindrance to decent and sustainable growth. 

The senior banker added that the move is expected to help not hinder the banking sector saddled with more than its fair share of problems, in particular bad debts, NPLs and the inability and unwillingness of banks to lend.

Regarding the shortcomings of the bill, Parvizian said there are far too many articles embedded in it and regulations proposed for the Islamic Development Bank are not compatible with CBI regulations. 

The new bank is planned to be an affiliate of the central bank. According to provisions of the bill, it will be managed by a board of trustees headed by the president of the country. Other members would be the minister of economy, head of the Plan and Budget Organization and the CBI boss. 

2 Key Tasks 

It will be mandated with two major tasks, namely opening long-term credit lines for financing macro development projects, and supporting specialized development banks by offering them short-term credits with the aim to finance the working capital of manufacturers.  

The initiative to set up a development bank was also criticized by CBI Governor Abdolnasser Hemmati.  Opposing the Majlis initiated bill and speaking in the chamber earlier in the month, he said the new institution would indeed overlap with the mandate of other similar banks such as the Agriculture Bank of Iran, Bank of Industry and Mine and Bank Maskan (main housing lender).   

In his view, the proposed Islamic Development Bank, if established, would be at odds with the role of the chief regulator.

“If you really want to boost CBI independence, please help in correcting (reforming) the banking regulations,” Hemmati told the floor.  

The Rouhani administration has drafted and submitted to the parliament two sets of banking rules, namely Banking Reform Bill and the Central Bank Bill. 

The bills have undergone several revisions and are still not approved by the parliament. Lawmakers have devised their own reform plan with the intent of finding middle ground to overhaul the financial sector after almost three decades.

The new framework (CIBB), for instance, does not appear to improve the current structure with regard to lenders’ borrowing from the CBI. 

As per the bill, “the CBI can meet the pressing liquidity needs of credit institutions facing liquidity shortages.”  

Regarding the administration structure, a “high board” will be atop the CBI and replace the governor who would be relegated to second position. 

Members of the board will fall into two categories:  executive and non-executive. The governor and vice governor would be executive members, and non-executive members will include scholars from the banking, monetary, accounting, financial management and law fields. 

Based on the new framework, a body dubbed the “council of financial stability coordination” will be formed to enhance the efficacy of financial and monetary policies.  

Financial experts have warned for years that the domestic banking sector is in bad health and is serving the economy poorly. One key contributor to the bad health of banks is the mountain of unpaid bank loans that has seriously undermined the lending power of banks. There is another major problem – the attitude of big debtors. 

It is often reported that successive governments pushed banks to lend to selected businesses despite the fact that there was concern that the borrowers were not credible enough. 

As it turned out many, if not most, of the debtors did not meet their financial commitments. Some said they were unable to pay while others had the egotism of saying that they were (and still are) unwilling to pay.