Banks Told to Shed Assets, Fix Balance Sheets

EghtesadOnline: Governor of the Central Bank of Iran Abdolnasser Hemmati has again called on lenders to tap into the stock market to improve their books and balance sheets.

News ID: ۷۵۰۲۹۰

22 June 2020

Hemmati pointed to the growing appeal of the stock market and asked banks to seize the opportunity and correct their balance sheets by shedding their non-financial assets.

“Under the current condition of the capital market, banks can help both expand the market and correct their balance sheets by offering their shares,” he said, addressing CEOs of banks late Saturday, the CBI website reported.

He recommended CEOs to recapitalize using share premium, saying that “this is a common method widely used in financial systems around the world”.

Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares. It's also known as additional paid-in capital and can be called paid-in capital in excess of par value.

Share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws. A share premium account appears in the shareholders' equity section of the balance sheet.

Lenders have come under mounting pressure from the government in recent months to end their non-banking activities by getting rid of expensive real estate and surplus holdings.

Estimates suggest that non-financial assets of lenders are worth 1,000 trillion rials ($5.3 billion). The assets have piled up mainly due to impaired loans, bad debts, settlement of government debts to banks, closure of branches and disastrous investments.

Hemmati earlier warned lenders that they have to let go their non-productive holdings as per law, saying that assets of banks and credit institutions should be liquidated and used for loans to production units.

With more than 1.3 million new investors entering the stock market since the beginning of the current fiscal year (on March 19), the main index of Tehran Stock Exchange has gained close to 150% during the three-month period

Cognizant of the unusual rush of investors to the growing market, the government is trying to draw on the opportunity to raise funds for plugging its widening budget deficits by unloading its assets.

Provisions in the current budget stipulate that the government needs to generate approximately 988 trillion rials ($5.2 billion) from divesting its properties.