Bank subsidy to debtors
This is not the first time that a decision regarding the forgiveness of bank borrowers and debtors is proposed. Although this decision was taken with the aim of collecting non-current claims, it seems to be in contradiction with the initial purpose and in the long run it will hit the banking system and its customers. From the point of view of experts, the forgiveness of banking crimes somehow creates the expectation that future debts will be forgiven again, and it will reduce the incentive to pay claims and fuel moral hazard in the banking system. As a result, some of the good people join the ranks of bad people. Another point is that the new decision will cause a shock to the banks’ balance sheets; Because banks should identify alternative income with this forgiveness of interest and penalties, while policymaking should not focus on changes in the balance sheet. The third point is that the major debtors to banks are government and semi-government companies, and the Ministry of Economy will be a beneficiary in this decision.
Bank subsidy to debtors
On the sidelines of yesterday’s meeting of the government board, the Minister of Economy announced the forgiveness of the outstanding debts owed to the state banks in case of settlement by the beginning of March. These statements are made while this action can be considered as a kind of subsidy payment for negligence; Because it leads people to non-payment of bank debts in the hope of forgiveness of arrears in the future. These words of the Minister of Economy yesterday can be considered as another form of non-compliance with corporate governance and one of the factors of increasing risk in the country’s banking system. It should be noted that this action is not a new behavior; In fact, comparing the treatment of developed governments with state financial institutions with the way this treatment is done in the country gives important clues about the origin of this problem. In addition, it seems that not only such an action can be considered against the principles of justice, but considering that a major group of bank debtors of state-owned companies are under the control of the Ministry of Economy, the Ministry of Economy can somehow be the beneficiary of this decision. The last point can be considered as one of the main reasons for the necessity of central bank independence in policy making.
Minister’s new banking promise
The Minister of Economy announced that bank crimes will be forgiven if the principal of the debt is paid by the beginning of March this year. Accordingly, on Wednesday, Seyyed Ahsan Khandozi, the Minister of Economic Affairs and Finance, said on the sidelines of the meeting of the government board that the Ministry of Economy coordinated with all the managers of the government banks that if people have debts and arrears to the bank, if they pay the principal of their debt by the first of March pay, all their banking crimes will be forgiven. Khandozi stated that “this action was taken with the aim of helping the recipients of facilities from the banking network”, and further said that in the past, the board of directors of banks had the authority to forgive crimes, and in order to facilitate people’s work and not need to write letters and correspondence, We gave all branches of state banks the authority to apply bank forgiveness in the branch itself. The Minister of Economy added: With the payment of the principal of the bank debt by the beginning of March, no more percentage will be charged as bank fines from the borrowers.
Subsidy for arrears
At the same time, the Minister of Economy is talking about helping bank debtors, which is a kind of signal to the borrowers and bank debtors. Based on this, such an action can create the expectation among bank debtors that regardless of the amount of their debts, they can wait for the announcement of forgiveness by the government officials to pay their debts. In fact, this action means that there is no difference between the creditworthy people who pay their debts to the banking system on time and those borrowers who have defaulted on their debts under certain conditions. In fact, this work subsidizes this category of debtors by not calculating the time value of the deferred debt. This issue is of great importance considering the high rate of inflation in recent years and can divert incentives to default on debts.
Banking injustice
The subsidy paid to bank debtors in the newly declared way also violates the principles of justice. In the country’s banking network, the number of facilities paid is far less than the number of deposits. On the other hand, most of the bank deposits are small amounts, and most of the facilities paid are larger than the average bank deposits. In other words, the majority of beneficiaries are from the middle to upper classes of the country’s economy. As a result, this new subsidy to bank debtors mainly goes to the wealthiest people, while its hidden costs are paid by all the depositors, or in other words, all the people of the country. On the other hand, such a decision creates a new hole in the banks’ balance sheets. In fact, banks identify assets from the arrears fines that they assign to their claims; In other words, with the forgiveness of these arrears, the share of the bank’s assets in the balance sheet will decrease and somehow add to its imbalance; An event whose consequences are directly imposed on the entire economy of the country.
Conflict of interests of the new plan
The new plan could somehow suffer from an important conflict of interest. Khandozi, the Minister of Economy, in his speech on Wednesday, did not emphasize that this plan is only for real people or that it also applies to legal persons; However, if this plan includes legal entities and companies, it can be said that the Ministry of Economy will benefit from this order. Considering that the major debtors of the country’s banking network are state-owned or government-supervised companies, the new decision can give the Ministry of Economy and Finance’s subdivisions the opportunity to avoid a large amount of the burden of their bank fines. In fact, one of the main reasons for assigning the powers of the banking system to the central bank and ensuring the independence of this bank in monetary policy is to prevent such problems from occurring. It is obvious that if a wrong structure and a conflict of interest is formed, a flow of rent allocation and patronage will be repeated and developed.
The need to correct the look at the bank
Banks are ultimately a business; Firms that deal with depositors, lenders and interest rates. A bank is an institution that creates money and allocates it to borrowers and attracts deposits from depositors according to the defined legal limits. Like any other business, the continuation of this process relies on the profit that the bank earns through it. The banking system in Iran has gone off the rails due to various unprofessional and mandated interventions that it has experienced in different periods. The new words of the Minister of Economy can be seen as a step along the lines of previous interventions.
In fact, in a bank that operates based on regulations and the market regulator prosecutes any violation, the bank is required to have positive capital to continue its activities. This is despite the fact that according to the officials of the previous periods of the country’s banking system, most Iranian banks have a negative capital balance. In such a situation, the policymaker not only steps in a direction to end this situation and correct it, but also steps in a completely opposite direction. Apart from this issue, the experience of the 2008 crisis and the nationalization of some large banks in developed countries shows that in a developed country, even if the government becomes the major shareholder of the bank, it never interferes in the bank’s activity at operational levels. In fact, in the current situation, it seems necessary to decide to adopt a specific procedure in disciplining the implementation of regulations, supporting the corporate governance of banks and not interfering in their internal decisions.
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