Banks’ Surplus Assets Fall Out of Favor

EghtesaadOnline: While the government insists on lenders to get rid of their surplus properties, it seems that this is better said than done.

News ID: ۷۸۴۸۱۸

25 August 2019

The primary problem is that in most, if not all, cases there are no buyers or the potential buyers can’t afford the (high) prices demanded by banks whose lending and other policies have been under mounting criticism for years seemingly to no avail.

In one case, Bank Melli Iran, the largest state-owned lender, said it could not find any buyer for its excess property worth 59 trillion rials ($504 million), in spite of the fact that it had upheld all legal formalities, including issuing relevant notices in popular print media and holding auctions, ISNA reported.

In another case, BMI said it failed to convince investors to buy the Iran National Steel Industrial Company it put on sale for the past two years, Financial Tribune reported.

Bidders apparently refused to buy fearing the multitude of problems the (loss-making) company was facing at the time of divestiture.

Non-banking activities of banks have long been castigated by renowned economic experts and senior government officials on the understandable grounds that such activities are a major hurdle to healthy banking.

Excess properties of banks have indeed piled up largely due to impaired loans, bad debts, settlement of government debt to banks and bad investments by lenders over the past several years and seemingly little or no state oversight.

Pricing Issues

Lenders failures to get rid of their surplus assets in due to pricing mechanisms, according to the deputy economy minister for banking, insurance and state companies, Abbas Memarnezhad. He blames pricing disputes and disagreements for the snail’s pace in selling the surplus assets.

Pricing procedures for listed companies in the stock market are straightforward as they are, and must be, compatible with regulations of the Securities and Exchange Organization.

The issue gets complicated when it comes to other companies that are to be priced as per provisions of Article 44 of the Constitution. These rules support divestiture of government assets to the private sector.

According to rules guiding the privatization of government assets, the government is obliged to transfer 80% of shares of state-owned and affiliated companies to nongovernment entities.

In recent weeks, the government has given added authority to the Economy Ministry to facilitate the divestiture process.

The ministry is allowed to make “adjustments” to existing rules regarding pricing issues.

Additionally, a special office will be opened in the ministry to handle the management and sale of surplus property of the struggling lenders.

Economy Minister Farhad Dejpasand has given an ultimatum to the banks to divest their excess properties by the yearend.

According to media reports, banks have surplus assets worth an estimated 700-1,000 trillion rials. They have been obliged to divest 400 trillion rials ($3.4 billion) of their surplus property before the current fiscal year is out in March 2020.

Banks divested 120 trillion rials ($1 billion) in surplus holdings in the last fiscal.

The divested companies belonged mainly to three big lenders, namely Bank Saderat, Tejarat Bank, and Bank Mellat.