Calm and stability

According to the Governor of the Central Bank of Iran (CBI) exchange rate fluctuations have a negative impact upon domestic production and lead to uncertainty and indecisiveness. In a TV program (PAYESH); Valiollah Seif said that the general expectation of the banking system is to step in and support the manufacturers. He added that some articles of the state budget have placed a burden on the banking system in the past years which are not in favor of private sector. "Today, private sector needs our support" he said. With regard to private banking in Iran, he believes that after IPOs some banks are moving towards being actually privately owned. Iran's Head of Money and Credit Council emphasized the crucial importance of collaboration between executive branches of the government and fiscal and monetary discipline and added that teamwork and collaboration between the government and CBI are regarded as essential for long-term decision making. He also pointed out that "capital adequacy" has been seriously discussed in government's economic stimulus package; "As a matter of fact, our economy is much bigger in size than say twenty years ago however, banks' capital has not been increased proportionately. In the package it has been proclaimed that banks which are not currently under the Central Bank supervision are obliged to list their shares in the stock market and stop investing in non-bank subsidiaries to some extent, in a three-year period banks' surplus shares in subsidiaries will be sold" he said. He then pointed at passing judgments on the banking system and said that most banks adhere to rules and regulations and violations should not be generalized. As stated by Seif banks need to correct their deviation from standard "fixed assets-to-capital" ratio in a five-year period (from 70% to 30%).
According to the Governor of CBI bank stakeholders include customers and clients, shareholders and industry bodies. Stakeholder engagement and identifying stakeholder concerns and taking appropriate actions are of crucial importance. When a client becomes a shareholder, this would be a conflict of interests. He warned that bank shareholders are not allowed to establish their own banks and loan granting procedures must not be influenced by any of the bank shareholders. Mr. Seif then talked about giving loans to non-bank subsidiaries and said that CBI is now directly engaged with independent auditors and all granted loans are being scrutinized.
He added that for the first time profits were shared between the bank and depositors in annual assemblies after the approval by independent auditors and in accordance with Central Bank's formula.
On non-performing loans and bad debts he said that interests and principal must be paid off on maturity date, however payments are sometimes overdue which is caused by a variety of reasons such as exchange rate fluctuations. "In some cases there is high level corruption which must be rooted out, however this cannot be generalized to all non-performing loans and overdue payments" he said.
He then argued that the role of banking system in the current economic downturn is to help those manufacturing plants which are in trouble by injecting funds and facilitating payments of their overdue installments.
According to Mr. Seif some state banks are not profitable anymore and there are plans to reform their financial statements which involve collaboration with Ministry of Economy. He then pointed at Islamic and Riba free banking and said that there is road map to Islamic banking in CBI and interest payments are not related to Riba and Islamic banking, "we need to curb the inflation in order to be able to demonstrate the superiority of Islamic banking" he said.
He then addressed the issue of "Mehr Housing Scheme", as stated by Seif injection of high-powered money was a mistake and led to surge in the monetary base (43000 billion tomans) and an unleashing inflation. Fortunately Ministry of Roads and Urban Development has made arrangements to complete the projects and has taken the issue of inflation into consideration.
In answer to a question about a recent letter to the President co-signed with the Minister of Roads and Urban Development with regard to banks noticeable investments in real estate sector and stimulating demand, Seif said that there were negotiations with the Ministry of Roads and Urban Development with no intention to publicize them.
Iran's Head of Money and Credit Council believes that stability is a prerequisite to GDP boost and exchange rate fluctuations have a negative impact on domestic production. He emphasized that CBI is carefully monitoring wild fluctuations in the exchange rate nonetheless in a calm, stable and growing economy exchange rate fluctuates. Undoubtedly there is a relation between economic growth and changes in exchange rate. "Our objective is to control wild fluctuations in the market and stabilize the rate. Due to the current stability in the market we are now prepared to unify our multi-tier exchange rate regime, of course reconciliation with international community is an important prerequisite for that, with current limitations it would not be reasonable to implement such plans. Once the international issues are resolved it takes five to six months to implement a single-tier system" he said.
Valiollah Seif addressed the issue of "unorganized money market", according to him CBI tends to regulate this market. In the Iranian year of 1392(2013) liquidity grew by 29.1% (3.2% of which belongs to credit institutes which came under CBI supervision).
With regard to marriage loans Mr. Seif said that Dr. Tayyebnia is determined to allocate the funds and granting loans has been facilitated after the holy month of Ramadan. "Demands are high and we hope to resolve the issue in near future" he added.
Mr. Seif told the TV host that decisions on volume of paper money, removing zeros from the national currency and single-digit inflation have been postponed until 1395(2016). "Digital Wallet is one of the measures taken by CBI in order to develop E-banking and there are plans for a pilot scheme in Kish Island" he said.
The Governor of Central Bank further talked about payment delay fines and said that according to Shari'a law it is not permissible," compliance with Guardian Council approvals is ensured in CBI, in order to compensate clients' failure to meet their financial obligations there is a separate contract with clients for delays in compliance with Shari'a law".
In answer to a question about financial scandals and corruption in banking system he strongly condemned bribery and corruption." This will cause severe damages to our economy and the corruption must be stamped out. People now are able to contact CBI via telephone and email and help us to root out bribery and corruption" he said.
Mr. Seif also warned people about tempting Internet and newspaper advertisements about bank loans. "People come to me and say that they have billions of dollars outside Iran and ask for help to transfer the funds into the country, when I ask them to transfer only $ 10 million they just disappear. They use all kinds of devious methods to gain money" he said.
In his last part of the interview Seif announced that liquidity in Iran is now around 6.15 trillion rials .He added that measures to tackle the recession have been taken into consideration in the government's economic stimulus package. As stated by him banks' lending power stood at 240000 billion tomans in the current year and there are plans to increase it by almost 16% (280000 billion tomans), 140000 billion tomans of which would be new facilities. He then emphasized the crucial importance of real estate sector as a catalyst to exit from stagnation, "there are plans to provide affordable housing for the middle class and real estate funds serve the purpose of providing mortgages", he said.