Banks clobbered by housing recession

A senior member of Tehran’s Chamber of Commerce has warned that the entry of commercial banks into non-banking business activities has backfired, causing lenders to become vulnerable to stagnation in the housing market.

Hossein Salimi said much of the banks’ calamities in recent years could be traced to their unprofessional, speculative behavior, Banker news website reported on Sunday.

“Banks kept on hoarding the depositor’s money and then used it for investment in the housing market by erecting buildings and skyscrapers,” Salimi was quoted as saying.

According to Salimi, banks first built their fortune by raising interest rates and playing an active role in the stock market through their subsidiary firms. “That is how they turned into real-estate moguls,” he contended.

He continued: “Banks’ assets and liabilities are blatantly incongruous which is indicative of the deteriorating situation in the banking industry. While the central bank could have prevented this from happening with proper oversight.”

“Banks’ foray into the real-estate market and even their establishment of insurance companies are but a few instances of their non-banking ventures in recent years.”

Party Is Over

Salimi pointed to the severe recession that has gripped the housing market since mid-2013, saying that banks have now fallen prey to the slowdown in home sales.
“The bulk of houses and apartments that were constructed by banks has now been left without buyers, leaving these lenders in a predicament,” he said, blaming banks for their poor choices.

Salimi slammed the banks for their irresponsible business activities and reminded them that in the United States, banks also went bankrupt for their reckless behavior.
He said: “Another contentious point for banks is opening numerous branches in an age of technology; e-banking has rendered traditional banking obsolete but banks heedlessly continue to open new branches.”

The manifold misery of Iranian banks has been stoked by mammoth government debt to banks, toxic debts and lenders’ non-banking ventures. The situation has prompted monetary officials and pundits to sound the alarm for banks and call for immediate reforms in the banking industry.

By Financial Tribune