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The domestic banking sector needs a thorough overhaul, Ali Divandari, head of Monetary and Banking Research Institute said. Any fissures in this important industry or its further weakening would seriously undermine the national economy, he warned.
“There was a time when our banking sector was a panacea for economic ills. Now its fortunes have reversed and it (also) needs urgent attention,” he said at a panel discussion hosted by Fars News Agency.
Divandari noted that the concept of banking in Iran has been misused and misunderstood compared to international banking standards practiced throughout the world. “We need to redefine the concept of banking and that includes scrapping outdated and cumbersome rules and replacing it with up-to-date regulations.”
He pointed to the domestic interest in establishing banks saying that the phenomenon is rather amazing. According to Divandari, banking is hardly an attractive enterprise on the international scene due to the “very strict rules” governing the sector and lenders being subject to “heavy surveillance.”
The unheeded growth of banks and their branches in Iran reached alarming proportions in the previous administration. Many organizations including the military establishment set up their own banks and financial institutions. The CBI has tried to stop the weed-like expansion by saying that it will not authorize the opening of new branches by banks.
“Oversight should be tightened by the central bank in order to protect the people’s savings,” Divandari said, adding that the CBI’s supervisory arm has strengthened under the Rouhani administration.
Role of Efficient Banking
One of the CBI’s main tasks is to channel banks’ financial resources and credits into activities that trigger growth and development at the national level. “Efficient banks are at the core of any country’s economic progress and help production and investment.”
“For instance, the development of steel, petrochemicals, oil and gas industries was possible with the help and financing from banks,” he recalled.
The important role and influence of banks was highlighted in the sanctions era. “When the banks were cut off from international banking and business, the whole domestic economy slowed down.”
Divandari pointed to the extended problems visiting the economy and singled out the billions owed to banks and the omnipresent problem of stressed assets. The non-performing loans have been a blow to both the banking system and the economy at large. “Bad debts are among the major causes of the credit crunch paralyzing the economy and production,’ he told the news agency.