CBI notifies sixth plan’s banking measures

Financial Tribune- The Central Bank of Iran has communicated bank-related regulatory articles of the sixth five-year development plan (2017-22) to the banking system.

In a separate announcement, the bank also notified a series of regulations to help achieve the objectives of the development plan.

According to announcements published on the official news website of the central bank, its first directive is about regulations concerning the monetary system of the country in the sixth plan.

The plan offers a medium-term roadmap designed by the government and the parliament to help achieve sustainable growth, outlining strategies in its budget planning for the following five years.

One of the regulations dictates that the “share of the National Development Fund of Iran from oil, natural gas condensates and gas exports during the first year of the implementation of the plan will be set at 30%” and a minimum of two percentage points will be added annually.

To implement “complete and all-encompassing oversight of CBI over monetary and banking institutions” and to “organize the informal monetary institutions and markets”, the central bank has been allowed to engage in a number of activities in addition to its legal mandate in accordance with laws that will be approved by the Money and Credit Council.

These activities will include banning the payment of dividends to bad shareholders of banks, suspending or cancelling working licenses for these entities and disqualifying unscrupulous CEOs among other things.

Furthermore, the CBI has been obligated to work with the judiciary and other related bodies in a way that by “expanding the National Credit Evaluation Databank and other executive and supervisory measures”, the ratio of non-performing loans to total loans would drop by 1% a year.

NPLs have been one of the major hurdles facing the banking system and while their rate stood as high as 18% a few years ago, top officials, including CBI Governor Valiollah Seif, have said it has come down to 10%.

Monetary Committee

The monetary regulations of sixth plan also designated members of the Money and Credit Council, which include the economy minister or his deputy, the CBI governor, two ministers chosen by the Cabinet and the head of the Iran Chamber of Commerce, Industries, Mines and Agriculture, among others.

What is more, a jurisprudential council is to be formed in the CBI comprising five clerics, the CBI governor or deputy for supervisory affairs, a lawyer, an economist, a lawmaker and a state-owned bank CEO chosen by the economy minister to ensure the correct implementation of usury-free banking operations throughout the country.

The council will have the authority to “comment on common banking methods, directives, guidelines, agreement frameworks and how they are implemented” by matching them with Islamic laws.

While all things approved by the council will be mandatory, members will be elected for four years and would be eligible for a second term.

The regulations also obligate the central bank to establish an online supervisory system to help prevent any violations and sell the excess assets of the Ministry of Cooperatives, Labor and Social Welfare during the first year of the plan to increase the capital of Cooperative Development Bank.

The directive has now been notified to the banking system and obligates the banks, among other things, to engage in foreign exchange transactions through domestic or foreign banks that have the approval of the central bank. They have also been mandated to disclose all their offshore accounts to CBI.

Setting a cap for the share of foreign collaboration in forming an Iran-based bank, the necessity of transferring state accounts to the central bank and the formation of the CBI General Assembly are other regulations to be implemented as part of the directive.

It also notes that the Iranian dual foreign exchange regime is to be monitored in the form of a “managed floating” system.