Shadow Banks Inflicted $2.8 Billion Loss on Gov’t

EghtesadOnline: The government paid 360 trillion rials ($2.8 billion) to compensate losses incurred by the misconduct of shadow banks and unruly lenders in recent years, said Mohammad Baqer Nobakht, the head of Plan and Budget Organization.

News ID: ۷۴۷۶۷۰

25 June 2019

Defending the performance of law-abiding lenders, he said the main problem with the banking system is the existence of uncertified credit institutions that have imposed monumental losses on the government.

“Unfair charges and criticism have been leveled against the banking sector… this is while uncertified financial institutions created a variety of trials and tribulations for the country,” Fars News Agency quoted him as saying.

Nobakht made the comments in response to mounting criticism against the banks’ poor performance regarding granting loans and other financial help to the flood-stricken people, according to Financial Tribune.

Unregulated credit institutions spawned for years but flourished largely during the tenure of former president Mahmoud Ahmadinejad (2005-2013). They were able to grab a quarter of the total liquidity because of little or no supervision. And as time passed by the rogue money institutions went bust creating huge problems for the government and people who kept money there.

These powerful financial institutions had made it difficult for the CBI to adjust interest rates within the legal framework because the rates they offered were almost always higher and created grounds for fraud and money laundering.

As problems started to multiply most of the lawless lenders went bust due to wholesale mismanagement, sheer lack of transparency and irresponsible investments in real estate and other dodgy business.

Samen–al-Hojaj Credit Institution was one of myriad of uncertified lenders to sink deep into red ink. The CBI mounted a campaign, albeit to no avail, to crack down on the hubristic institutions and their bosses that had been undermining the financial credibility and stability of the banking industry.

Needless to say, the CBI itself has been under strong criticism from many quarters for giving licenses to the duplicitous institutions in the first place.

Funds For Flood Relief

Citing a report on the scale of losses caused by the early spring floods, Nobakhat said the natural disaster incurred 380 trillion rials (close to $3 billion) in losses.

To mitigate the losses, there has been a division of work among relevant organizations, he said during a ceremony to sign a memorandum of understanding with banks for lending 3 trillion rials for rebuilding and renovating flood-hit areas.

A total of 230 trillion rials is planned to be allocated from the budget resources.

The remaining 150 trillion rials will be paid in loans by banks, he added, noting that the calamity came at a time when the country is struggling with the most “oppressive” sanctions in history.

The US sanctions have hit Iran’s oil revenues along with its metals and petrochemical sectors, causing huge budgetary strains.

Nobakhat said the government has earmarked 35 trillion rials for the flood-stricken areas.

The Cabinet decided on Sunday to pay another 39 trillion rials to the regions hit by the deluge.

Of this amount, 10 trillion rials is to be paid for rebuilding roads, 15 trillion rials for restoring public buildings and 14 trillion rials for rehabilitating electricity and sewage infrastructure.

Devastating rains which began in late April caused flooding in many parts of Iran, mainly in the northern and southwestern regions.

At least 70 people were killed and hundreds and thousands were displaced. The deluge destroyed livelihoods, homes, farmlands, roads, bridges and power and water infrastructure mostly in the deprived areas.