CBI Moves to Regulate Leasing Firms

EghtesadOnline: The Central Bank of Iran has recognized leasing firms as separate entities from monetary players, potentially opening a new chapter in the country’s lending sector.

News ID: ۷۸۳۹۵۱

10 September 2018

According to the secretary-general of Iranian National Leasing Association, CBI’s Department of Studies and Regulations has announced new definitions and categorizations for leasing companies through a formal letter sent to the association on Sept. 2.

“The letter designated the position of leasing companies in the country’s monetary and financial regime since it said they will be categorized as financial entities offering facilities that do not accept deposits and operate under license from the central bank,” Mohammad Hadi Moqei also told IBENA on Wednesday.

He said the strategy of the association was to clearly define the position and definition of leasing operations and the central bank has now made decisions, Financial Tribune reported.

Stressing that several key aspects must be considered in the new categorization, Moqei said leasing forms are official financial entities in the country similar to capital market brokers and investment banks, but with clear differences.

“Leasing companies are the type of financial entities that allocate credit and are facilitators. No other financial entities in the country offer loans except leasing companies, which differentiates them from monetary entities,” he said.

The official pointed out that the main characteristic is that leasing firms are prohibited from accepting deposits that puts them in a special spot. He elaborated that monetary entities like banks are allowed to accept deposits and allocate loans, whereas leasing companies cannot accept deposits even though they allocate facilities.

“Now that the definition and categorization of leasing activities have been offered by the central bank, it is time to devise regulations for credit allocators who do not accept deposits,” the head of the association said.

Moqei stressed that a number of regulations applying to banks and credit institutions do not apply to leasing firms. Those include the Basel Accords, the set of recommendations for regulations in the banking industry and other similar supervision-related regulations.

“A number of other regulations pertaining to financial institutions such as insurance companies and investment banks do not apply to leasing companies. This is a new chapter in the categorization of financial and monetary entities in the country,” he said.

He noted that for leasing companies to earnestly begin work, the National Tax Administration and the judiciary must become fully acquainted with their work to execute tax regulations and potential legal prosecution cases to the full extent of the law.

“Standards concerning auditing and financial reporting, including identification of income, calculating resources and categorizing items on balance sheets, must be conducted based on this categorization of activities by the central bank,” he said.

Moqei also said that it is essential to differentiate between the legal activities of leasing firms and similar illegal operations prevailing in unofficial markets, which will flush out intermediaries operating in the markets for capital goods like vehicles and gradually eliminate negative misconceptions about leasing companies.

Leasing firms are slated to begin their operations in earnest to assist the process of financing in Iran’s markets and take a load off banks and credit institutions. They have been especially eyed to enter the ailing housing market and fill the gaps, but no tangible results have materialized yet.

Moqei had announced in October 2017 that there is a multilateral push among the Housing Department of the Ministry of Roads and Urban Development, the ministry’s Planning and Economy Office, the National Leasing Association and CBI’s Research and Regulations Department, which have led to the establishment of a task group to devise a directive that will allow leasing firms to enter the housing market.