Banks to Dispose Spare Assets Worth $5.6 Billion

EghtesadOnline: Banks are set to dispose of assets to the tune of 600 trillion rials ($5.6 billion) by the end of the fiscal year (March 2020), a deputy minister of economy told a press conference on Monday.

News ID: ۷۴۸۵۹۳

01 October 2019

"Omid Investment Co., National Development Group, Jahrom Power Plant, Simorgh Company and Kesht Sanat Karoun are among bank-owned companies to be offered in the capital market in the near future," Abbas Memarnejad was quoted as saying by IRIB, the sate-owned radio and TV broadcaster.

The official noted that more than 140 trillion rials ($1.2 billion) of banks surplus assets have been sold since March 2017, Financial Tribune reported.

"We encountered problems in the key sector…Banks' total unneeded assets are simply too big."

Elaborating on the Economy Ministry's other plans for redefining the banking sector, Memarnejad said, "We have come up with a package of solutions to help lenders deal with their problems. The solutions mostly seek to tackle financial problems, boost structural reforms and rewrite the cumbersome regulations."

Iranian lenders have been required to cut their non-banking activities and get rid of excess property to be able to raise capital.

Excess properties of banks have piled up largely due to impaired loans, bad debts, settlement of huge government debts to banks and bad investments by lenders over the past several years.

The main challenge for banks was the lack of a [realistic] framework for evaluating the assets, the official said, adding that "a framework is now in place and is being employed."

Reducing the number of bank branches is another solution, according the deputy minister. "Approximately 10,000 bank branches are not needed. Cutting this number would result in releasing 800 trillion rials [$6.9 billion]."

Central Bank of Iran figures show there are 21,000 bank branches across the country. Bank Melli Iran alone accounts for 3,300 branches. Bank Sepah's branches will increase to 4,600 after the upcoming merger, though the state-owned lender has said that it has a three-year plan to shut down 1,000 branches.

Government Debt

The Economy Ministry has also come up with a solution to reduce the mountain of government debt to banks.

"Our goal is to settle a portion of the total arrears to lenders by issuing bonds," Memarnejad said, noting that the government owes an estimated 1,700 trillion rials ($14.7 billion) to the banking sector.

Banks account for the biggest share of government debts, and as is often the case, the government in power blames its predecessors for the huge loans that in turn give rise to debts of banks to the CBI and, by extension, government debts to banks.

Government debt, troubled credits, distressed debts and NPLs have become a serious source of concern among government advocates and adversaries, not to mention free market pioneers.

With the ballooning government deficit spending due to the decline in oil exports, economic experts of various stripes are anxious to see how the banks will get better before they get worse.