Veteran Bankers Defy Iran's New Banking Bill

EghtesadOnline: A group of banking experts, including former governors of Central Bank of Iran, has criticized provisions of a new banking bill as ambiguous, impractical and lacking informed analysis.

News ID: ۷۴۹۵۰۳

21 January 2020

Not denying the positive elements of the bill, the experts, who attended a banking conference on Monday, were unanimous in the view that the bill must be built on the need for structural reforms, Financial Tribune reported.

The Majlis ratified the outlines of banking rules under the “Comprehensive Islamic Banking Bill” in December.

The CIBB includes three sets of regulations regarding the Islamic Banking Bill, Central Bank of Iran Bill and setting up an Islamic Republic of Iran Development Bank.

Opponents hold the strong claim that the measure is unilateral because the views of banking experts (independent or otherwise) have not been considered.

Among the fervent opponents was Tahmasb Mazaheri, a former CBI boss, who castigated the ways and means the rules were drafted. “The bill is drafted and developed by a handful of lawmakers who essentially lack banking expertise,” IRNA quoted him as saying.

Such rules constitute the “basic laws” that will govern and guide the banking sector and should be the work of informed minds, he said.

He was echoing the stance of the current CBI Governor Abdolnasser Hemmati, who also chastised lawmakers over the fact that they had not sought the CBI’s opinion when writing the bill – something rather strange in today’s highly competitive world wherein banks play a role of paramount importance.

Mazaheri pointed to ambiguities in the currency policies enshrined in the bill, saying that the matter needs to be addressed meticulously given the role and significance of currency issues in Iran over the past four decades.

Final Blow

His overall appraisal could be summarized in the fact that the parliament-initiated bill cannot address the grave issues banks are grappling with and could rather turn out to be “the last blow to the banking system”. He did not provide details to back his claims.

The bill has received a fair share of criticism over the fact that it also will undermine CBI independence. Trying hard to dissuade MPs from ratifying the bill last month, Hemmati said the new regulations will “deal a blow to the CBI structure” at a time when the country is saddled with tough US economic sanctions.

There are fears that the bill will harm not help Iran’s banking system struggling with a mountain of bad debts, NPLs and the inability and unwillingness of banks to lend to businesses and SMEs.

Additionally, changes in the CBI management structure and the obligation on the bank to also serve a new development bank are among dividing points between bankers and the lawmakers.

As per the bill’s provisions regarding management issues, a ‘high council’ will be atop the CBI and replace the governor, which would be relegated to second position.

Members of the council will fall into two categories:  executive and non-executive. The governor and vice governor will function as executive members while the non-executive members will include scholars in the banking, monetary, accounting, financial management and law fields.

Positive Side

Ebrahim Sheibani, another former CBI chief, tried to highlight the positive aspects of the bill but did not ignore the flaws in the proposed structural management of the bank.

On the plus side, he pointed to parts of the bill that allow functioning of credit rating agencies and creating deposit guarantee funds that should assure depositors about the safety of their money parked in banks.

The bill also authorizes the central bank to set up a comprehensive database for overseeing and monitoring the performance of lenders and credit institutions.

It also includes stipulations that allow banks to publish the name of loan defaulters and disreputable borrowers. In addition, if a debtor cannot repay the bank, the latter would be allowed to withdraw money from the defaulter’s account(s) in any other bank in the country.

A combination of these rules, Sheibani said, will ultimately promote transparency in the banking system that has been under mounting pressure to focus on transparency and openness in all its spheres, namely when it comes to big lending, accepting collateral and venturing into non-banking activities.

Development Bank

Provisions of the bill that call for founding a “development bank”, experts say, is at odds with the CBI’s independence.

The bank is ostensibly planned to be an affiliate of the central bank. 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 extending long-term credit for financing macro development plans, and supporting specialized development banks by offering cheap loans to manufactures.