False reports on assets of banks
“Iran’s banking system has aged me”. This is a quotation by Mohamadreza Nematzadeh, the ۶۹ - year old Minister of Industries and BusinessIndustry, Mines and Trade. In the third month of ministry, he mentioned that the existence of many problems in production sector itis’s banking system’s fault. for causing many problems in production sector.
"Iran's banking system has aged me". This is a quotation by Mohamadreza Nematzadeh, the 69-year old Minister of Industries and BusinessIndustry, Mines and Trade. In the third month of ministry, he mentioned that the existence of many problems in production sector itis's banking system's fault. for causing many problems in production sector. Now, 9 months after such quotation, Transport and Urban Development Minister Abbas Akhoundi says again that "Iran's financial system contradicts development". He also believes that "poisoned assets" of Iranian banks is the most important problem on this matter. Talking with Tejarat Farda Weekly Akhoundi said: ''Currently Iran's economy suffers from long illnesses which contradicting each other and banking system acts as blood in the vessels of this ill economy. But, this blood is too contaminated. Using vitamins or antibiotics is not helpful in recovering the ill economy. First, contaminated blood must be extracted from the its
body. of ill economy. The sickailing economy needs fresh blood ". Minister of Industries and Business criticizes the matter in a different way from Nematzadeh; Akhoundi's manner is more concentrate and exact. During the 24th Conference on Monetary and Exchange Polices held in Tehran, Akhoundi also severely criticized finance as a vicious circle in Iran caused by inefficiencies in banking system. Akhoundi's main criticism emphasizes on the matter fact that banks have converted their sources of deposits into underlying assets consequently; facilitation granting facilities is weak in the financial part of economy. This leads to a vicious cycle circle of finance in real sector of Iran's economy. Presently, due to several reasons, Iranian banks are unable to finance in economy. The fFirst challenge is "poisoned or underlying assets" of which and the main part of which is related to overdue collectionsnon-performing loans. That is, huge numbers of collections loans in the balance sheets and assets of banks
seem unperceivablenon-receivable. Such collections non-performing loans are among the reasons for disturbing cash flow.
Iranian banks have also some other poisoned assets. Those are the ones bought by banks during recent years when housing prices went up. These assets were used to develop bank branches. Allegedly, the registered value of such assets is not real and banks' Writtenwritten-down value vanishes when inflation falls. One more point is that banks invest in their dependent affiliate companies. Statistics show that at the end of last year, the investment rates were 50 percent more than capital base. Comparing standard levels, these rates are high. All these factors and issues alike (the government intervention in granting facilities and determining rates, lack of a system of credit scoring rating for the customers of banks, instability in macroeconomics and uncertainty about the future of indexes like exchange and inflation) caused banks to be unable to grant facilities in practice.
A lose-lose game between banks and enterprises
Production sector's conflict of interests with banking system's is not a new issue and it has been discussed worldwide especially in recent years. Sometimes, producers gave false information to banks to take out loans for investing investment in high risk activities or trading while, banks every so often refrain from giving low interest loans to more important sectors of economy. For such problems, Ahmad Meydari, economist and deputy of the Minister of Cooperatives, Labor, and Social Welfare in his recent research treated the relations between enterprises and banks as a "lose-lose game" or" zero-sum game" in Iran's current economy. In his research titled by "removing conflict of interests in banks and production sectors" Meydari referred to some challenges like "shortage of financial resources, high interest facilities, time taking process of receiving loans, taking huge collateral security, short time of reimbursement, etc. He suggests copying Japanese banking system for reconciliation between financial part and economy. Japanese pattern is based on three principles: "acquisition and management linkage between banking system and production sector", "controlling banking system" and "financing industrial projects by organizations dependent to the government". Beside Like German pattern of banking system, Japanese pattern is also welcomed by institutionalist economists in Iran. They recommend non-competitive banking system based on good linkage with production sector. Some other Iranian economists -supporting free economy- advise Anglo-Saxon pattern of banking system emphasizing on the concept of "competition". Moreover, one should consider problems for banks caused by "productive" section of economy. According to statistics, 22 percent of banking facilities belongs to Industry industrysector whereas, 31 percent of dated banking demands is related to this sector. Furthermore, only 13 percent of Iran's GDP belongs to "industry and mining" sector excluding "construction".
Fishing in troubled waters
However, it seems that financial section and banking system are more criticized and the problematic situation of their different sections including of them (facilities granting, interest rates and risks like capital adequacy ratio) proves that such criticism is fair. In a same global experience and after financial crisis in U.S.A in 2008, such condemnations were more sever. In At that time financial crisis crises were rooted in banks and consequently other sections of economy involved inwere dragged into the crisis worldwide. On the other sideMeanwhile, those banks together with other financial institutions profited most during the years ending in financial crisis. Some studies show that in America and after financial liberalizations in early 1980s, profits of the companies in financial section sector rose to 40 percent in 2006 comparing to 1980 which grew 10 percent. As they say, the same mentioned situation has happened in Iran too. In 2011-2012, economic growth slumped severely (around 3 percent) and it fell below zero in the following yearsyears later. During those years, banks (especiallybanks, especially private banks,) published reports on their strong profitability and their interest rates were also announced over 40 percent, ( according to reports from annual general meetings)..