Bonds to Be Accepted as Collateral by Iran Banks

EghtesadOnline: The Central Bank of Iran has sent a directive to banks and credit institutions obliging agent banks to accept Islamic bonds as collateral from contractors of development projects.

News ID: ۷۸۴۴۷۶

12 January 2019

The measure had been proposed in the budget law of the current fiscal (March 2017-18) which also tasks the CBI with drafting regulations to implement the law.

It refers to earlier CBI directives and emphasizes that accepting Islamic bonds as collateral follows a similar process as other securities traded on the stock market.

CBI directs bond owners to the Central Security Depository of Iran to fill the application form that should  be signed by both parties (contractor and the bank), according to Financial Tribune.

As per provisions of the bylaw, Islamic bonds issued in the monetary market via agent banks can also be taken  as collateral for guaranteeing loans via Sima system (a local acronym for Integrated System of Processing Securities) before they are traded on the stock market.

The directive does not cover Islamic bonds issued and guaranteed by banks and credit institutions. It obliges lenders to check the authenticity of bonds, their capacity to be converted into cash and their marketability prior to lending in order to safeguard their own benefit and of  the depositors.

According to the guideline, the executive mechanism will be the same as outlined by the SEO in terms of interest rate, rights issue and removing collateral.

Earnings from Islamic bonds up to the maturity date will be considered as the principal amount of bonds and will be kept with CSDI until the contract is settled.

As mentioned in the next year’s proposed budget, the government also intends to securitize up to 200 trillion rials ($2 billion) of its debts to banks.

This is as per provisions of Note 5 of the budget bill and part of the CBI’s open market policy and the initiative to offer Islamic bonds to banks which can be used as collateral by lenders to borrow from the CBI.