Banking Bill Ratified Amid Iran's CB Concerns

EghtesadOnline: Majlis ratified the outlines of banking rules under the “Comprehensive Islamic Banking Bill” umbrella on Tuesday.

News ID: ۷۴۹۱۹۸

18 December 2019

The package of rules includes the Islamic Banking Bill, Central Bank of Iran Bill and an initiative to establish the Islamic Republic of Iran Development Bank. It also comprises a scheme for rewriting the decades-old banking laws.

Lawmakers passed the blueprint of the bill amid concerns that it will undermine the independence of Central Bank of Iran. One fervent opponent of the rules is Abdolnasser Hemmati, the CBI boss, who attended the parliamentary session to convince MPs to tweak the provisions of the bill, Financial Tribune reported.

“I am not here to deny the efforts of those who prepared the bill. But I want to dissuade MPs from ratifying it,” the parliamentary news website ICANA quoted him as saying.

While acknowledging the positive side of the bill, Hemmati urged the MPs not to pass the bill “as it deals a blow to the CBI structure” at a time when the country is saddled with economic sanctions.

“As CBI governor, I’m not convinced by [provisions of] the bill,” he said, chastising lawmakers over the fact that they didn’t call for the CBI’s opinion when drafting the bill.

“I’ve been wondering how is it possible to draft 205 Articles about a banking system without [lawmakers’] bothering to convince experts and the CBI,” the senior banker said.

Serving the New Bank

Provisions of the Comprehensive Islamic Banking Bill include establishing a “development bank”, which Hemmati says is at odds with the CBI’s independence.

“This is against CBI’s independence because it obliges the CBI to print money and give it to development bank,” he said.

The bank is planned to be an affiliate of the central bank. According to the provisions of the bill, it will be managed by a board of trustees headed by the president of the country. Other members would be the minister of economy, head of the Plan and Budget Organization and the CBI boss.

The bank will be mandated with two major tasks, namely opening long-term credit for financing macro development plans, and supporting specialized development banks by offering cheap working capital loans to manufactures.

If established, Hemmati said, the bank would work parallel with other similar banks such as the specialized Agriculture Bank of Iran, Bank of Industry and Mine and Bank Maskan (main housing lender).

Explaining what he meant by independence, he said CBI independence does not mean that the affairs are not coordinated with the government, but it means that “the opinion of experts” should be the basis of decisions.

Hemmati said if the MPS are honest in their claims about supporting the independence of the CBI, they better ratify the government-backed Bank Reform Bill.

The bill was sent to parliament more than two years ago. The Banking Reform Bill, which is supposed to replace the current decades-old Usury-Free Banking Law, outlines procedures for banks and credit institutions for obtaining a license from the CBI.

It also explains banking operations and services, notifies regulations for the establishment of foreign banks and sets ceilings on their investment.

“If you want to boost CBI independence, help in correcting the banking regulations,” Hemmati told the chamber.

CBI Mandate

As per provisions of the bill, the CBI is mandated with stabilizing prices, ensuring the health of the banking system and promoting economic growth through financial stability.

Regarding the management structure, a “high board” will be atop the CBI and replace the governor, which would be relegated to the second position.

Members of the board will fall into two categories:  executive and non-executive. The governor and vice governor would be executive members, and non-executive members will include scholars from the banking, monetary, accounting, financial management and law fields.

Based on the new framework, a body dubbed as the “council of financial stability coordination” will be formed to enhance the efficacy of financial and monetary policies.

The council would comprise top officials from the CBI, Securities and Exchange Organization, Central Insurance company of Iran, a deputy from the Ministry of Economy and the National Development Fund of Iran.