Raisi Calls for Remaking the Ailing Banking Sector

EghtesadOnline: President Ebrahim Raisi in a meeting with CEOs of banks underscored the pressing need for change in managing the banking system that has come under systemic criticism for long periods.

News ID: ۷۸۷۶۴۹

18 January 2022

“A successful overhaul in the banking sector is a prerequisite to economic reforms,” Raisi said.

Highlighting the point, he added that the “existing banking environment must change based on justice and in the interest of the people,” president.ir said.

Raisi asked the senior bankers to set up a taskforce in coordination with the Central Bank of Iran to identify and address the “inherent problems” of the underperforming banking industry.

The taskforce should be mandated with rewriting banking rules, promoting transparency and facilitating the banking needs of the people and manufacturers.

The president emphasized that rules and regulations governing banking should “thoroughly comply with Islamic principles.”

He recommended banks to “ease borrowing conditions” for the people and businesses and “minimize banking fees and lending rates” to the extent possible. Lenders were urged to rethink collateral rules and instead prioritize credibility assessment when studying microloan requests.

Lenders were advised to impose tougher restrictions on deadbeat borrowers and publicly name names of big loan defaulters.

Banks were also asked not to take over the ownership of manufacturing companies in lieu of debts.

“As the last resort, and if banks have no alternative save for seizing the property, they must restart the firms as soon as possible to prevent disruptions, layoffs and furloughs.”

The president asked banks to direct liquidity into productive sectors and reiterated the long-standing demand on banks to stay away from business activities that for years have become a major problem of the important banking sector.

“Banks’ contribution to establishing new companies is worthy  but they must not get involved in owning and controlling businesses.”

On the sidelines of the meeting, the CBI Governor Ali Salehabadi said the regulator and commercial lenders are willing to undertake reforms proposed by the president.

Big Defaulters

The CBI boss pointed to the need to improve transparency in banking affairs and address the persisting problem of big loan defaulters, saying that lenders will soon be obliged to report their performance on a regular basis.

In addition, the name of big loan defaulters will be made public and be seen on the Codal platform -- an information website used by listed companies in the bourse for financial reporting.

Based on earlier CBI reports, there are 11 major debtors who owe an estimated 900 trillion rials ($3.3 billion) to banks and are unable (some say unwilling) to repay.

The longstanding problem of big defaulters and vested interests is seen as the biggest challenge of Iran’s ailing banking system. It has long hurt the balance sheets of banks and forced many to stop lending despite the chronic need of businesses to borrow.

The CBI boss added that measures are in place to start easing lending rules and use credibility appraisal as criteria for loan eligibility.

Earlier in the week the CBI said banks must consider the credit rating of customers requesting loans instead of demanding collateral for microloans.

Accordingly, the borrowers’ check transaction performance and even their performance in paying traffic fines and utility bills in a timely manner are among the criteria proposed for assessing the credit profile of borrowers.

In the same vein, Ali Bahadori Jaharomi, the government spokesperson, on Monday said that the new lending rules will likely be applied to loans below 1 billion rials.

To improve oversight on lending the CBI said it has designed a system that accesses data banks and allows direct interaction among bank branches, sharing customer data and enabling banks to better monitor the eligibility of borrowers.

The Economy Minister Ehsan Khandouzi welcomed the president’s meeting with banks in a note on his social media account, saying “such meetings were not held in the past decade”.