Why Iran’s banking shake-up won’t be enough

TEHRAN, Iran — On July 24, Valiollah Seif, the governor of the Central Bank of Iran (CBI), unveiled the Central Bank and Usury-Free Banking Reform Bill, also known as the Banking Reform Bill, to support sustained acceleration in economic growth and broad expansion of the private sector, which is currently suffering from a credit crunch in the Iranian financial system. If approved by the government, the bill will then be sent to parliament.

Iran’s current banking laws are decades old and have never been comprehensively reviewed by any administration subsequent to the 1979 Islamic Revolution. Indeed, Seif said, the Central Bank Law was last revised in 1983 and before that in 1972. Under President Mahmoud Ahmadinejad (2005-13), some efforts were made to begin revising the laws and regulations governing the sector — under the framework of the government’s broader Economic Development Plan — but nothing really became of it.

The objectives of the overhaul envisioned in the Banking Reform Bill involve enhancing the policymaking and supervisory role of the CBI, lowering the ratio of nonperforming loans (NPLs), raising capital requirements for banks and eventually paving the way for government debt owed to private contractors and banks to be securitized.

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This article was written by Navid Kalhor for Al-Monitor on Oct. 14, 2016. Navid Kalhor holds an MSc in finance from Azad University and earned a BA and MA in English literature from Allameh Tabataba’i University. He has worked in the Iran Mercantile Exchange and the Tehran Stock Exchange as a trader and equity research analyst for different brokerage firms.