EghtesadOnline: Lawmakers on Sunday decided to look into the performance of the Central Bank of Iran during the past five years. The bank’s seemingly poor performance in regulating the currency market and the questionable activities of shadow banks are among the main motives behind the parliamentary move.
Moreover, the MPs want to probe the regulator’s performance in implementing monetary and banking laws, bonuses to senior bank officials and the CBI’s failure in oversight and the lending policies of banks, parliamentary news website ICANA reported.
With respect to unlicensed finance and credit institutions, head of the Majlis Economic Commission Mohammadreza Pourebrahimi says CBI negligence in overseeing the work of banks and credit institutions encouraged the lenders to pay “unusual” interest on bank deposits.
The unregulated credit and financial institutions spawned for years but flourished during the tenure of former president Mahmoud Ahmadinejad (2005-20013). They were able to grab a quarter of the nation's liquidity because of little or no supervision, Financial Tribune reported.
These visibly powerful money institutions had made it difficult (some say impossible) for the CBI to adjust interest rates within the legal framework because deposit rates they offered were always higher and created grounds for money laundering.
As time passed many of these lenders went bust due to chronic mismanagement and irresponsible investments in real estate.
Echoing the extended, but seemingly futile, complaints of respected economic and experts, Pourebrahimi said, “Appointing incompetent people to top-level managerial posts in most banks and credit institutions has eventually resulted in astronomical losses for the people.”
He blamed the CBI for not taking timely action vis-à-vis the fate of ordinary folks and micro depositors who put their money in the dissolved banks. “This (unacceptable) state of affairs has given rise to added pessimism among the people toward the banking industry.”
The legislator said abject failure to implement efficient monetary policies had also led to the flight of capital from banks, particularly state-owned banks. He criticized those in charge for not implementing the oft-mentioned ratings policy and classify banks in terms of performance.
Rating of banks has long been overdue largely because unruly and rogue financial institutions have disrupted the money market and in the process ruined the public trust in the banking system.
During their probe MPs will also decipher the poor CBI performance in implementing the tenets of usury-free banking, anti-money-laundering laws and the chaos in bank lending rates.
According to usury-free banking law, banks have a share the profit or loss incurred by loans they pay. This is while most banks in Iran do not accept losses. If a customer cannot repay the loan when times are bad, they simply impound the collateral.
The parliamentarians will present their initial report to the chamber in six months, but the timeline can be extended to nine months.
Hosseinali Hajdeligani, an MP behind the proposal, expressed the hope that the probe will succeed in exposing the flaws and failures of the cumbersome banking sector.
Pointing to the shadow banks’ inability in reimbursing deposits of clients, he said the investigation must shed light on why the CBI, in the first place, had authorized the establishment of such shaky banks.
“If people cannot place their trust in the CBI’s authorization, where can they do so.”