Iran Parliament Moves to Rein in Venal Banking Sector

EghtesadOnline: The Majlis Economic Commission is preparing a bill In line with efforts to promote long-awaited transparency in the key banking sector.

News ID: ۷۴۸۰۶۷

04 August 2019

If and when it becomes law, it will allow the people to have access to sensitive data about processes involved in granting big loans, the chairman of the commission said.

“It will focus mainly on bank loans, forestall distortion of banking resources and dismantle corruption,” IBENA quoted Elias Hazrati as saying.

“The objective is also to make it possible for the people to monitor all the processes involved in granting big loans, namely the amounts paid and the reason(s) for borrowing,” Financial Tribune quoted him as saying.

When the law comes into force, a system will be created in the Central Bank of Iran that will compile and release data about loans and identity of borrowers, including the amount and the reasons for applying.

“As per provisions of the draft bill, the new system should be accessible to all people,” the MP said, stressing that with openness and transparency in lending big money, the entire loan mechanism will come under the public spotlight and the potential for fraud and corruption would be reduced to a bare minimum.

The issue has particularly gained traction as an increasing number of big borrowers defaulting on their debt to lenders have led to the emergence of sick banks and accumulation of billions of dollars in impaired loans over the past three decades.

Manufactures Struggle

Non-performing loans are one of the main problems undermining the already dysfunctional banking sector that has choked off credit to struggling manufactures and commercial companies.

The mountain of bad loans is largely thanks to nepotism,  fraud, mismanagement and lack of oversight vis-à-vis lending institutions – both private and state-owned.

One recent case of mismanagement in the huge but inefficient banking industry is the ongoing court sessions held for several “bankrupt” borrowers reportedly linked to vested interests.

Teetering banks and their bosses have come under increasing fire for paying unusually hefty loans without proper checks, controls and collateral.

With the number of bad loans becoming a norm, relevant authorities intensified efforts last year to crackdown on deepening corruption arising from big borrowers unwilling and unable to repay their loans and in effect making a mockery of the financial and monetary system.

A report by Majlis Research Center in May 2018  said about 60% of the total volume of NPLs will "unlikely be cleared", which is the worst kind of bad loans.

In response to a letter from the former judiciary chief, Ayatollah Sadeq Amoli Larijani in July 2018, the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, agreed to a long-awaited probe to uphold justice and use the full force of law against fraud, malpractice and corruption.

After that an anti-corruption parliamentary commission sent a report last year to the judiciary on 31 big bank loan defaulters.