“Central Bank Law” executive version of the President’s order for non-performing banks
According to Iran Economist, one of the challenges of Iran’s banking system and economy are unsecured and unhealthy banks, whose activities cause inflation in Iran’s economy.
For the first time, Farzin, the head of the central bank, announced clearly for the first time in April 1402: “There is a bank that has been out of balance for three years, and this bank will no longer be balanced, and if it is not balanced, it must go to Gazir.” In addition, at the same time, in the special conversation program of Farzin news, in response to the question that you can promise that the first bank of Natraz will be liquidated this year, he said: “Sure.” How many banks will be appointed this year?
In April of this year, the president said in a conference: “A series of institutions and banks have overdrawn from the central bank and this phenomenon is causing the country’s economic systems to collapse (but determining their duties is still discussed in the meetings)?” How long are we going to have this discussion? This should end in a limited time and the status of these institutions should be clarified.”
On Saturday, January 9, President Seyed Ebrahim Raisi, in the 63rd session of the General Assembly of the Central Bank, once again emphasized the need to resolve the banks that overdraw from the Central Bank and said: “Be sensitive to overdraft. There are several banks and institutions that have problems and have overdrafts. One or two of them were mentioned by Mr. Farzin that the assignment has been assigned. Time is passing.»
The two institutions that the president announced to be appointed were Development and Noor credit institutions, both of which were dissolved and merged this year. Development Credit Institution about 15 thousand 500 billion Tomans and Noor Credit Institution 47 thousand billion Tomans have overdrawn from Central Bank. The liquidated Development Institute and Noor Institute were transferred to the National Bank along with dispossessing the shareholder, its non-toxic assets and debts, most of which were customer deposits.
But those institutions that Seyyed Ebrahim Raeesi emphasized are still remaining and should be appointed as soon as possible, what are those institutions?
Mohammad Reza Farzin, the head of the Central Bank of Iran, said on December 21 at the Iran Economic Conference: “What we are seeing in the banking system today is more of a liquidity imbalance and not a balance sheet imbalance; But isn’t the dissonance caused by liquidity important? It is very important because if this imbalance is not resolved, it will turn into a debt-asset imbalance and bankruptcy will occur.” And the examination of the situation of some banks shows that in those banks, the liquidity imbalance has finally turned into an imbalance in assets and liabilities.
* A bank’s 26.2% share of the total debt of banks to the central bank
For example, based on the financial statements of a private bank, this bank owes 136,826 billion tomans directly to the central bank until the end of September. In addition, it has 22 thousand and 390 billion tomans of debt in the interbank market.
According to the report of the central bank, the total debt of the banks to the central bank, both public and private, whether in the form of credit lines or overdrafts, until the end of September 1402 is equal to 521 thousand 100 billion tomans, and with this account, 26.2% of the total debt of the banks. to the Central Bank, belongs to this private bank. The thing to think about is the continuation of this upward trend of overdrafts, so that according to the latest information, the debt of this private bank to the central bank has exceeded 150 thousand billion tomans by the end of November this year.
Due to the illegal investment of customers’ deposits in large-scale commercial projects and also the payment of facilities to related parties, this private bank has a severe imbalance in the income from the facilities granted and the deposit interest paid to customers, and this problem causes the loss of this bank to increase every day. And its overdraft from the central bank will become more severe. According to the latest statistics, the accumulated losses of this private bank have exceeded 167 thousand billion tomans.
* The possibility of assigning tasks to three banks
Another private bank that had no debt to the central bank until the end of 1400, in 1402 owes the central bank an amount of 3200 billion tomans, but in a strange exponential trend, in the first 6 months of this year, the amount of overdraft of this bank from the resources of the central bank It has approached the figure of 20 thousand billion tomans. This figure shows that the debt of this bank to the central bank has increased by more than 15 thousand billion tomans in the first 6 months of this year.
Also, a private bank with a registered capital of 400 billion tomans and an accumulated loss of nearly 40 thousand billion tomans owes 20 thousand billion tomans to the central bank, and the major part of this figure is the principal overdraft to the central bank.
These three banks are an example of banks whose overdrafts have been on the rise due to lack of liquidity, and as the president rightly emphasized, these banks should be assigned duties as soon as possible. Determining the duty of these three banks means determining the duty of about 177 thousand billion tomans from the overdrafts and debts of the banks to the central bank.
* The capacities of the new law of the Central Bank to determine the duties of non-performing banks
In the monetary and banking law approved in 1351, the central bank did not have specific powers to liquidate and dissolve unsound banks, but in the central bank law, which was promulgated by the president on December 11 of this year and will come into effect six months after its promulgation, there are extensive powers. It is intended for the central bank. This law has a very good capacity to implement the President’s order.
According to Article 8 of the Central Bank Law, one of the duties of the Supreme Board of the Central Bank is to make a decision regarding the appointment of the temporary supervisory board for the restructuring and liquidation of delinquent or at-risk credit institutions, and in Article 24 of this law, one of the duties and powers of the Central Bank’s Deputy for Regulation and Supervision is , the management of the process of restructuring and transfer of credit institutions (banks) has been determined.
* The authority of the central bank’s supreme board to dismiss the board of directors in case of overdraft
According to Article 45 of the Central Bank Law, if the credit institution’s overdraft amount from the Central Bank’s resources exceeds the daily limit in four consecutive working days, or exceeds the weekly limit in four consecutive weeks, the deputy director of regulation and supervision is obliged to notify the institution. Creditor, immediately inform the head of the issue and bring it up in the first regular or extraordinary meeting of the supreme board. After hearing the report of the deputy director of regulation and supervision, the supreme board can agree to the request of the applicant credit institution to receive emergency facilities or oblige the president to appoint a temporary supervisory board for the credit institution in question.
In fact, according to this law, if a bank overdrafts from the central bank for only 30 days beyond the set limits, the supreme board of the central bank can dismiss all the members of the board of directors of that bank and oblige the president of the central bank to appoint a supervisory board.
* The deadline for settlement of Natraz Bank’s borrowing from the central bank is three months at most
According to paragraph (p) of article 45, the maturity period of emergency facilities is only 30 days, and according to paragraph
According to what is stated in paragraph C of this article, the deputy director of regulation and supervision is obliged to submit a report on the status of the credit institution in question to the president and the supreme board for decision before the expiration of the emergency facility. For the first time, two-thirds of the members approve the extension, and for the second time, three-fourths of the members approve the extension, and it is not allowed to extend the facility more than twice.
Therefore, according to this law, which came into effect on June 1, 1403, the file of a bank or credit institution, if it overdrafts for more than four days or one month from the limits set by the central bank, will be placed on the table of the supreme board of the central bank. This bank can use the emergency facilities of the central bank for a maximum of three months, and if there is no possibility of correction during this time, it will move towards bankruptcy. This issue is considered in Article 33.
* The duty of the general chairman to propose the bank statement that cannot be amended to the board of directors
Article 33 states: If the head of the credit institution, during the period when the credit institution is managed by the temporary supervisory board or before, comes to the conclusion that the indicators of the capital and liquidity status of the credit institution cannot be corrected, he is obliged to propose the transfer of the credit institution. to present to the Supreme Council. In case of approval of the General Chairman’s proposal by the Supreme Board, the credit institution will enter the transition stage with the following arrangements:
1- The current management of credit institutions is under the responsibility of “Deposit Guarantee Fund”. The deposit guarantee fund is obliged to start the process of liquidation of the credit institution in question within five working days after the approval of the Supreme Board and with the lowest financial and social cost and with the aim of protecting and respecting the interests of depositors, especially small depositors and other beneficiaries of the institution. To complete the desired loan according to the law.
As mentioned earlier in this report, Mohammadreza Farzin, the head of the central bank, announced earlier this year that the bank, which has been out of balance for three consecutive years, will no longer be balanced and should be placed in the liquidation process. If we take this as the primary basis for the definition of the governor of the central bank as an unamendable bank, several banks are currently subject to the changes based on the law of the central bank and the governor’s definition.
* Determining 5 methods for clearing non-performing banks
Article 30 of the Central Bank Law deals in detail with the details of bank or credit institution promissory notes, and also in Article 33 and its notes, bank or credit institution promissory notes are discussed in detail. According to Note 2 of Article 33, the Executive Director can, within the framework of this law, propose the following items to the Supreme Board:
1- Selling or handing over all or part of the assets and liabilities of a credit institution to another credit institution
2- Transferring the remaining assets and liabilities of the transitioning credit institution to a “transitional credit institution”
3- Converting part of the unguaranteed debts of the current credit institution into shares within the framework of the relevant laws.
4- Merger of the current credit institution into another credit institution with the approval of the general meeting of the merging credit institution.
5- Liquidation of the credit institution in progress
According to Fars, therefore, the law of the central bank has specified the duties of the central bank and how to deal with unsafe and unhealthy banks, and the executive version of the president’s order is the implementation of the law of the central bank. One of the structural reforms in Iran’s economy to curb inflation and improve economic growth is to determine the role of unhealthy and non-performing banks, and then we can plan to stabilize and strengthen the value of the national currency and single-digit inflation in the coming years, if non-performing banks are removed from the banking system. get out
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