Reforming the structure of banks and taking toxic assets off their balance sheets cannot be undertaken overnight, but is feasible at a slow pace, a banking manager told Eghtesad News.
“Banks have been weakened by the contradictory monetary policies in the past decade and the only solution is to help the government find a way to repay its debts to the banking system”, Abdolnaser Hemati, chief executive of Bank Melli said arguing that “when banking resources are locked, toxic assets stop the effective operation of the banking system.”
Iranian lenders together hold over 938 trillion rials ($32.9 billion at official exchange rate) of non-performing loans. The figure is double this amount if we account for loans whose due date is rescheduled by lenders to make the books look healthier. This has eroded lending power of the banks, driving up the cost of money.
Another issue is the government’s debts to the banking system, which further erodes their financial resources. The previous administration repaid some of the debts by giving them stakes in dysfunctional state owned companies or illiquid assets, worsening the financial health of banks. Currently the government owes the banking system 929 trillion rials ($32.5 billion).
Hemati called on the government, lawmakers and the judiciary to assist the banks in finding a solution to recover their non-performing loans. In this respect, he considered the removal of toxic assets from the balance sheets of the banks an important priority, saying, “The banks should take the first step and the central bank should develop the relevant guidelines.”
Calling on the central bank to strengthen its supervisory arms, Hemati said, “Some of the banking financial statements have been manipulated and are not reliable. The supervisory authority should address the issue seriously and hold the auditors accountable.”
Another aspect of the banking crisis is the limited access of the central bank to information , due to manipulation of financial statements by the banks which try to hide their losses and show profits. With low average tenures as chief executives, the drive for showing profit to get a bonus is high.
Hemati proposed the regulator to oblige the banks to submit regular financial reports on a weekly or monthly basis and praised the efforts it has taken in this regard in the past year.