The Central Bank of Iran is pushing banks to meet the standard capital adequacy ratio (CAR) to make them eligible for reintegration into the global banking system, CBI Governor Valiollah Seif said at the closing
ceremony of the 26th Annual Conference on Monetary and Exchange Rate Policies in Tehran on Wednesday.
“Basel II standards require the minimum acceptable CAR for banks to be 12%, but that ratio is about 4.5% in Iran. The central bank will strive to fill the gap,” he said.
Smothered by bad debt and shut out of the global system by the international sanctions, Iranian banks are in dire need to resume business with their foreign peers. The majority of these banks, however, have long functioned with low capital adequacy requirements and inadequate or ineffective regulatory and supervisory mechanisms.
Accounting, audit and oversight norms at Iranian banks are far behind what prevails in most western countries, as the former still use Basel I rules for risk-management and capital requirements — while US and European lenders are shifting to highly advanced, transparent and open mechanisms.
On improving the business environment, Seif said financing small and medium enterprises is high on the CBI agenda. “Banks should help generate new job opportunities and foster growth.”
Growth Trajectory
Peyman Qorbani, CBI deputy for economic affairs, told the event that greater focus should be placed on commercial and fiscal policies to drive sustainable growth. “We cannot expect to achieve long-term economic growth so long as we look only to CBI monetary policy [in addressing shortcomings].”
Elaborating on the benefits of a debt market, he said, “A debt market will allow more transparency for government affairs, lower costs and provide banks with the much-needed financial resources.”
“Issuing bonds through the debt market will also help nurture the free-market economy in the country. It also will help the regulator to employ indirect monetary policies and improve the interbank market.”
Iran issued Islamic treasury bills, its version of short-term sovereign debt, for the first time last year in an attempt to provide some fiscal stimulus for its cash-strapped economy.
About $300 million worth of the treasury bills — a sharia law-compliant way for the government to raise money — was offered to investors at a steep discount to their face value. The move came soon after a breakthrough agreement with six world powers (five permanent members of the UN Security Council plus Germany) that partially lifted sanctions in exchange for Iran putting some curbs on its nuclear program.
According to Qorbani, Iran’s domestic debt to GDP ratio is less than 25%, which provides the government ample opportunity to tap the debt market.
Qorbani also referred to the government and CBI stimulus to lift the economy out of recession last year. “The program had a limited scope; we seek to improve GDP and curb inflation, in the long haul.”
Iran’s external debt is insignificant compared to many other countries. Japanese government debt, for example, is now above 240% of GDP and the government continues to pile up deficits of around 8% of GDP per year. China’s stock of credit reached a dubious milestone in the second quarter: it is now equivalent to 200% of GDP, having risen steeply over the past five years.
Seeking Long-Term Impact
Hadi Qavami, a lawmaker, was another speaker who referred to government’s plans for clearing its debt to the banking sector by using foreign currency resources and how the MPs had scuttled the plan.
“Majlis rejected the proposal since it failed to address the practicality of issues and its long-term negative impact on the economy,” he said.
He went on to say that the legislature “favors programs that help boost national earnings rather than the ones that are a replay of past errors.”
Qavami said foreign investment should be directed into sectors that are not fully developed and called for more attention for SMEs.
Housing Sector
Bank Maskan, a lender specializing in housing mortgage, needs a wide set of tools for financing the key sector, according to the bank’s CEO Mohammad Hashem Botshekan.
“Housing sector has a key role in pulling the economy out of recession as more than 130 businesses are linked to this sector, either directly or indirectly.”
He said the lender needs to tap into “foreign investment and special government facilities” to play a more efficient role in the property market.
“We have proposed the establishment of Bank Maskan’s local offshoots in different regions of the country to help address the financial needs of local real estate and construction markets,” Botshekan said, adding that his bank would soon issue mortgage-backed securities for the first time.
“Maskan is trying to spin-off an investment bank, a leasing company and an asset management firm in its attempts to help improve the sluggish housing market,” he said, without elaboration.
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The Central Bank of Iran is pushing banks to meet the standard capital adequacy ratio (CAR) to make them eligible for reintegration into the global banking system, CBI Governor Valiollah Seif said at the closing
ceremony of the 26th Annual Conference on Monetary and Exchange Rate Policies in Tehran on Wednesday.
“Basel II standards require the minimum acceptable CAR for banks to be 12%, but that ratio is about 4.5% in Iran. The central bank will strive to fill the gap,” he said.
Smothered by bad debt and shut out of the global system by the international sanctions, Iranian banks are in dire need to resume business with their foreign peers. The majority of these banks, however, have long functioned with low capital adequacy requirements and inadequate or ineffective regulatory and supervisory mechanisms.
Accounting, audit and oversight norms at Iranian banks are far behind what prevails in most western countries, as the former still use Basel I rules for risk-management and capital requirements — while US and European lenders are shifting to highly advanced, transparent and open mechanisms.
On improving the business environment, Seif said financing small and medium enterprises is high on the CBI agenda. “Banks should help generate new job opportunities and foster growth.”
Growth Trajectory
Peyman Qorbani, CBI deputy for economic affairs, told the event that greater focus should be placed on commercial and fiscal policies to drive sustainable growth. “We cannot expect to achieve long-term economic growth so long as we look only to CBI monetary policy [in addressing shortcomings].”
Elaborating on the benefits of a debt market, he said, “A debt market will allow more transparency for government affairs, lower costs and provide banks with the much-needed financial resources.”
“Issuing bonds through the debt market will also help nurture the free-market economy in the country. It also will help the regulator to employ indirect monetary policies and improve the interbank market.”
Iran issued Islamic treasury bills, its version of short-term sovereign debt, for the first time last year in an attempt to provide some fiscal stimulus for its cash-strapped economy.
About $300 million worth of the treasury bills — a sharia law-compliant way for the government to raise money — was offered to investors at a steep discount to their face value. The move came soon after a breakthrough agreement with six world powers (five permanent members of the UN Security Council plus Germany) that partially lifted sanctions in exchange for Iran putting some curbs on its nuclear program.
According to Qorbani, Iran’s domestic debt to GDP ratio is less than 25%, which provides the government ample opportunity to tap the debt market.
Qorbani also referred to the government and CBI stimulus to lift the economy out of recession last year. “The program had a limited scope; we seek to improve GDP and curb inflation, in the long haul.”
Iran’s external debt is insignificant compared to many other countries. Japanese government debt, for example, is now above 240% of GDP and the government continues to pile up deficits of around 8% of GDP per year. China’s stock of credit reached a dubious milestone in the second quarter: it is now equivalent to 200% of GDP, having risen steeply over the past five years.
Seeking Long-Term Impact
Hadi Qavami, a lawmaker, was another speaker who referred to government’s plans for clearing its debt to the banking sector by using foreign currency resources and how the MPs had scuttled the plan.
“Majlis rejected the proposal since it failed to address the practicality of issues and its long-term negative impact on the economy,” he said.
He went on to say that the legislature “favors programs that help boost national earnings rather than the ones that are a replay of past errors.”
Qavami said foreign investment should be directed into sectors that are not fully developed and called for more attention for SMEs.
Housing Sector
Bank Maskan, a lender specializing in housing mortgage, needs a wide set of tools for financing the key sector, according to the bank’s CEO Mohammad Hashem Botshekan.
“Housing sector has a key role in pulling the economy out of recession as more than 130 businesses are linked to this sector, either directly or indirectly.”
He said the lender needs to tap into “foreign investment and special government facilities” to play a more efficient role in the property market.
“We have proposed the establishment of Bank Maskan’s local offshoots in different regions of the country to help address the financial needs of local real estate and construction markets,” Botshekan said, adding that his bank would soon issue mortgage-backed securities for the first time.
“Maskan is trying to spin-off an investment bank, a leasing company and an asset management firm in its attempts to help improve the sluggish housing market,” he said, without elaboration.
