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    Canada Party Boss Says Iran’s Leaders Are ‘Liars’

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    Making Life Harder For Afghans

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Central Bank says it will dissolve Iran’s many troubled banks

May 12, 2023

 

Mohammad-Reza Farzin, governor of the Central Bank, says he plans to dissolve troubled banks by the middle of the current Persian year (September 21) as a measure to throttle raging inflation. 

     One of the main economic problems is excessive lending and money creation by some banks, Farzin said in a TV interview. “We will not allow these banks to continue,” he said. “Those banks that cannot fix their problems will be dissolved.”

     He did not name any troubled banks, nor give any number.  But he said the Central Bank has prepared a list of such banks and sent it to the government.  He also said the process of dissolution has already begun for some of them.

     “If we want to restore financial and monetary stability through non-inflationary methods, banks have to increase their capital. But banks that do not have enough capital and bloated balance sheets should realize that, if they cannot solve their problems, they will be shuttered.”

     As for depositors, Farzin said, “The Central Bank is the guarantor of the people’s deposits in the banks that will be closed. All their money will be returned.”

     It remains to be seen how this decree will be implemented and which banks may merge with other institutions after dissolution.

     The Financial Tribune said, “It has been reported that the exponential growth in the monetary base is driven largely by the lenders’ mounting debt to the Central Bank.”

     It said banks lacking a balance in their income and expenses have increased liquidity and caused chronic inflation by borrowing from the Central Bank to conceal the imbalances.

     But the Majlis has also forced the banks to make interest-free loans to newly-married couples and to families with newborns.  That is an effort to promote marriage and childbirth, but it hobbles banks at the same time.  Farzin said nothing about restoring banks by ending the practice of forced interest-free loans.

     Financial reports of banks in the Persian year that ended in March 2022 show the majority struggling with capital adequacy ratios (CARs) below global financial norms. Out of a total of 23 banks, the CAR of eight was below zero, six had a ratio from 0 to 4 percent and four between 4 and 8 percent.

     Only five banks had a capital adequacy ratio above 8 percent, according to data published by the Fars news agency.

     Currently, the minimum CAR under international standards is 8 percent under Basel II and 10.5 percent under Basel III.

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