Plan to Shed Surplus Assets of Banks Worth $1.3 Billion

EghtesadOnline: Economy Minister Farhad Dejpasand unveiled an online system that tracks surplus assets owned by banks and credit institutions.

News ID: ۷۴۹۰۸۵

02 December 2019

The mechanism logs data on 18 banks, both private and state-owned, with the aim to improve transparency about the value of assets and inform public opinion about the details.

“This is a practical step toward unlocking banks’ resources, which in turn should boost their lending capacity,” Dejpasand told a special ceremony attended by senior bankers, IBENA reported.

The system functions as a venue through which lenders put their properties on sale and potential buyers come forward, Financial Tribune reported.

The initiative is in line with much-awaited banking reforms undertaken by the Central Bank of Iran to improve the balance sheets of banks, discourage lenders from engaging in non-bank activities and reduce their non-current liabilities.

Dejpasand said the system offers data about lenders’ surplus property worth 170 trillion rials ($1.3 billion), reiterating that “this does not cover all banks excess assets”.

The assets on sale are to include 1,246 manufacturing units and 277 animal husbandry companies. The minister emphasized that “earnings in the entirety from the divestiture will go to the banks and not a penny to the treasury”.

Four banks, namely Bank Melli Iran, Mellat Bank, Agricultural Bank of Iran and Bank Saderat Iran own 50% of the assets with the state-owned BMI topping the list with 14% of the total.

Property of banks have piled up largely due to impaired loans, bad debts, settlement of government debt to banks and bad investments by lenders in the past several years.

The mechanism, dubbed as “Fam” is available at www.sam-ba.ir and www.fam-bank.ir. It allows potential buyers convenient access to data about banks’ extra assets and facilitates sales using online auctions.

One Year Program

In related news, Abbas Memarnejad, the deputy economy minister for banking, insurance and state-owned companies' affairs, said lenders’ assets would be put up at an electronic auction by the Side Market of Iran Mercantile Exchange by the end of this month.

In an earlier announcement, Dejpasand spoke about a one-year program for 10 government-owned banks (including the biggest lenders) to relinquish excess assets –mostly real estate – to boost their cash reserves.

Excess property of banks are estimated to be in the region of 1,000 trillion rials ($8 billion) and the government has plans to divest 400 trillion rials ($3.2 billion) before the current fiscal is out next March.

Bank’s non-banking activities have long been singled out by economic experts and senior government officials on the grounds that it is a major hurdle to healthy and transparent banking.

Another issue notable for Iranian banks – and related to their other activities – is that the number of their branches are far too many. Media reports say there are more than 22,000 bank branches half of which are not needed.

The number of branches need not exceed 12,000 based on indicators such as net domestic product, population and demographics, Memarnejad said.

The central bank has compelled struggling banks to cut their non-banking activities and get rid of excess property to be able to raise capital and expand lending to manufactures and businesses.

Despite calls for action from many quarters to end non-bank activities, it appears that many lenders have trouble deciding on prices or finding customers for their property, mainly expensive real estate in uptown areas in most metropolises.

The primary problem is that in most, if not all, cases there are no buyers or the potential buyers can’t afford the (high) prices banks demand.

Lenders failure to get rid of their surplus assets is partly due to pricing mechanisms, Memarnezhad said earlier, blaming pricing disputes and disagreements for the snail’s pace in selling the costly property.