Bank Transparency, Disinflation Driving Gov't Policy

EghtesadOnline: Top banking officials and pundits gathered on Tuesday to discuss matters vital to the future prosperity of the Iranian banking system and as an extension, the Iranian economy, underscoring the importance of tamed inflation, better transparency and stronger lending.

News ID: ۷۳۹۴۲۰

25 January 2017

Governor of the Central Bank of Iran Valiollah Seif, its vice governor, Akbar Komijani, and senior presidential economic advisor, Masoud Nili, were among the main speakers at the Sixth Annual Conference on Monetary and Fiscal Policies at the Iran Banking Institute in Tehran.

The central bank governor centered his argument on transparency and accountability in the banking system, noting that an absence of transparent information will gravely undermine the supervisory system and monetary policies.

"Transparency is the most important characteristic of information in banks and creates a self-monitoring system," Financial Tribune quoted Seif as saying.

A non-transparent bank undermines the interests of all beneficiaries, including the financial stability and health of itself and the banking system, as well as national security."

The CBI governor outlined four major pillars that uphold transparency in the banking system, namely bank management, independent bank auditors, Securities and Exchange Organization (SEO) and the government.

He stressed the importance of the establishment and organization of corporate governance committees by bank managers, saying "some banks have taken steps toward realizing this, but unfortunately the current situation regarding the matter is not acceptable".

Seif called independent bank auditing "the foremost independent chain of supervision", noting that Iranian banks are not doing well in this area.

The CBI chief, who also heads the Money and Credit Council, said SEO is accountable for listed banks and transparency lies at the core of its mandate.

On the subject of the government, he referred to its mounting debts to banks, which "has become the big dilemma of a number of banks", saying it must be organized as soon as possible.

Seif also cited the recent official inflation figure, putting the inflation rate for the Iranian month of Dey (December 21-January 19) at 8.6% and point-to-point inflation at 9.6%.

"It is predicted that the single-digit inflation rate would persist through the end of the current fiscal year (in March)," he said.

Inflation at the Core

Masoud Nili, the top economic advisor to President Hassan Rouhani, painted a picture of the country's growth since the victory of the 1979 Islamic Revolution and discussed the role of banking system in economic growth.

He compared GDP in the years immediately after the revolution, after the Iran-Iraq war and before and after the nuclear-related sanctions, identifying inflation rate as the telling factor that must always be monitored and dealt with smartly and with foresight.

"If we lose sight of the single-digit inflation rate, this will hurt economic growth," he said, noting that taming the inflation faces a number of challenges, including the high volume of money supply that comes from the banking system "and also the need to overhaul the outdated banking system".

The other factor exerting influence on the inflation is the government budget spending, which the economic expert said must be amended by focusing on an "outward-looking economic approach".

"An outward-looking economy can direct the high volume of liquidity toward helping with the supply side and it will curb inflation," Nili said.

SME Target Almost Realized

The vice governor of the central bank outlined CBI's endeavors for stabilizing the Iranian economy, saying the bank is mainly closing in on this goal by controlling the inflation rate.

"Directing resources toward manufacturing jobs, providing the working capital of production units and bettering micro-financing are among the most important policies of CBI in support of production," Akbar Komijani added.

The official referred to the overwhelming share of the banking system in financing the economy, saying "from 2014, more than 79% of the financing have been shouldered by the banking system".

Therefore, he added, that the need for an overhaul of the banking system is felt urgently.

"In this regard, the formation of this faulty cycle in the banking system and resulting credit crunch are the most important problems of the money market, which have roots in the troubles with the financial statements of the banks," he said.

Referring to the Banking Overhaul Plan signed into law by the president in early July, the vice governor said the central bank has undertaken many efforts as part of its first phase that include "the active management of the interbank market, improving credit allocation and providing working capital, bankrolling projects with a high physical progress and financing the small- and medium-sized enterprises".

Komijani presented the latest data pertaining to SMEs whose dire need of funds has been a recurring topic of discussion throughout the year.

"Some 20,300 SMEs have received more than 140 trillion rials ($3.63 billion) by January 15, which indicate that 86% of the target 160 trillion rials ($4.15 billion) of loans earmarked for these enterprises have been fulfilled," he said.