The decrease in the growth of banks’ facility balance is a positive sign of liquidity growth control

According to Iran Economist, the analysis of Central Bank statistics shows that the trend of the balance of bank facilities has been a decrease, which indicates the control of the amount of money creation by banks, so that the growth of the balance of facilities granted by banks in the first four months of this year compared to the same period last year , has decreased significantly.

From the second half of last year, the central bank implemented the policy of controlling some balance sheets of banks, based on which the growth of commercial banks’ balance sheets was determined by 2 percent and the growth of specialized banks’ balance sheets by 2.5 percent per month.

According to this report, from July this year, the scope of growth of banks’ balance sheets based on asset quality and their ratio with banking standards was around 2.5 to 1.5 percent.

The assets of banks include many things, but one of the main ones is the balance of granted facilities. In the first quarter of last year, the growth of the balance of granted facilities was 13.6%, but this amount has decreased to 3.6% in the first quarter of this year.

The four-month growth statistics of the granted facilities for the entire banking system have not been published, but the monthly performance statistics of 11 stock-exchange banks show that this trend continues.

According to the statistics, among these 11 banks, the growth of the loan balance of 10 banks was less than 10%; While in the first four months of last year, 9 of these 11 banks had a 2-digit increase in the balance of granted facilities. Out of these 9 banks, four banks have registered a 20-30% growth in the granted facilities.

This process shows that the central bank in the 13th government has been able to significantly reduce the growth of money creation in banks, and this issue will be the basis for controlling inflation in the coming months.

“Mohammad Ali Khadim”, an economic expert, in an interview with Iran Economist’s reporter regarding the control of liquidity and balance sheets of banks, said: the decrease in the balance of bank facilities is a positive sign of the process of improving the control of banks’ balance sheets and reducing liquidity.

He added: Controlling banks’ lending and liquidity growth is the most important action that the central bank must take, and it is the first priority of the central bank, and it must be done with a view of several months in order to control the banks’ balance sheets and the reduction of banks’ lending facilities, and pull the reins of liquidity. Prepare to reduce inflation and control the exchange rate.

This economic expert stated that the creation of banks’ liquidity is influenced by two factors, and said: one is related to the government budget, and some banks take action due to the relationship between the budget they have with the government and the mandatory facilities that the government places on them to provide facilities to state-owned companies. They create liquidity.

He continued: Another part of banks’ liquidity creation, which mostly includes private banks, is the creation of liquidity that private banks do for themselves or their subsidiaries.

Khadim stated: It is recommended that in the first part that the government imposes liquidity on banks through facilities, it should be in the form of issuing financing bonds, in the sense that instead of taking its budget deficit from banks through facilities, the government should take this budget deficit from the banks. By selling bonds and making the government indebted to the people and the market, provide financing that does not have the negative effects of creating liquidity.

He said: The second issue of controlling the liquidity of banks, which is done to create liquidity of private banks through the construction of large shopping centers or things like that, requires serious monitoring by the central bank, and accordingly, the budgetary operations of banks should be monitored.

This economic expert stated: The lack of growth of government liquidity at this time is related to the actions of the central bank and that the creation of controlled liquidity can be a positive signal that the central bank is applying serious restrictions and it is necessary that this process continue.

He said: “In all parts of the world, to control bad behavior of banks, which is called bank failure, the tool of capital adequacy is used, that is, a limit for the bank to be determined that a significant amount of its capital is involved in the banking system that provides facilities.”

Khadim continued: “Unfortunately, in the current banking system of the country, the capital adequacy situation of various banks is not good, and some even have negative capital adequacy.” The most important tool to control the balance sheet and liquidity is bank supervision, which should be taken seriously and force banks that are not in a good condition in terms of capital adequacy or do not increase capital through the right methods to be determined. The capital adequacy tool should be used by the central bank and set as a benchmark