Next Budget Sees 25% Rise in State Banks’ Net Income

This is 25% higher on the 1,840 trillion rials ($6.3b) in the present fiscal year, according to a report by the news agency of the Monetary and Banking Research Institute, IBENA.

Lenders have been divided into two categories based on their financial health. The revenue forecast is 903.5 trillion rials ($3.1b) for seven banks that are either making profit or at least break-even.

This group includes Bank Keshavarzi (AgriBank), Bank of Industry and Mine, Export Development Bank of Iran, Post Bank of Iran, Tose'e Ta'avon Bank (Cooperatives Development Bank) and Bank Maskan – the main housing lender.

Bank Melli Iran and Bank Sepah are the two main state-owned lenders that have reported losses in their recent financial statements. As per the provisions of the next budget, these two are projected to generate 1,410 trillion rials ($4.8b).

President Ebrahim Raisi submitted the next budget to the parliament on Sunday. The operating budget (including revenues mainly from tax and export) is 13,720 trillion rials ($47b).

Income-Expenditure Mismatch

According to budget bill, banks’ expenses will outstrip income. Total expenses are projected to hover around 2,650 trillion rials ($9.13b) compared to 2,179 trillion rials ($7.5b) this fiscal year.

Despite the CBI’s concerted efforts to improve the balance sheets of banks, the gap between their income and expenses is expected to worsen next year.

In September Bank Melli Iran published its first financial reported, which revealed some staggering numbers about its performance.

It reported 675.23 trillion rials ($2.3b) in accumulated losses in the previous fiscal year (March 2020-21), which was almost 73% of its capital effectively making it a candidate for bankruptcy.

Financial statements of other lenders show that the majority are struggling with capital adequacy ratios (CARs) well below global financial standards.

Among the state-run banks, the BMI and EDBI are the only two that have acceptable capital adequacies.

BMI has reported CAR at 10.24%, Bank Keshavarzi (Agro-bank)  1.47% and EDBI 12.5%.  The CARs of Bank Maskan and Bank Sepah were negative at -1.5 and -5.75%, respectively.

Also known as capital-to-risk weighted assets ratio (CRAR), CAR is used to protect depositors and promote the stability and efficiency of financial systems.  It is calculated by dividing a bank's capital by its risk-weighted assets.

Minimum capital adequacy ratios are critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds.