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October 2021, No. 98


Banking

Private Banks & Irans Economic Challenges


Critical groups express different reasons for dissatisfaction. First of all, the general public is dissatisfied with the banks, because they expect the banks to meet their financial needs in the event of a financial shortage.


These days, private banks are known as the main culprits of economic turmoil in the country. This is why some whispers are sometimes heard about their dissolution, merger or governmentalization.

However, many economists consider the problems of Irans economy beyond the issue of the private banks and believe that in the same banking system, if fundamental reforms were made, for example, if the Central Bank had a better performance in its record, we would not see such critical conditions. On the other hand, Hassan Motamedi, a banking expert, believes that the achievements of private banks should also be taken into account. According to him, private banks, in addition to having a constructive and positive competition with each other in developing services and improving the quality of banking services, especially online services, have also drawn state-owned and public - private banks to a situation we are witnessing today. Some of the modern branches of the old state-owned banks and the off-site services of these banks have become competitive with private banks today. 

Why is criticism against banks so widespread? And why is most of the criticism is directed at private banks?

Critical groups express different reasons for dissatisfaction. First of all, the general public is dissatisfied with the banks, because they expect the banks to meet their financial needs in the event of a financial shortage. In addition to comparing their needs with the loud noise of users in various ways of financial resources, especially the use of special relationships or even resorting to inappropriate methods, such as embezzlement in astronomical figures from banks, which is widely reported in the media and cyberspace. In addition, due to the extensive connections with the outside world, people are aware that in most countries, financial resources are abundant in the banking network and can be easily used to purchase assets and even incur current expenditures.


The problems of todays economic turmoil have not arisen recently, but are the result of the cumulative effects of more than half a century of performance.


It is heard that on the other side of the world, people pay a very small amount in cash to own a car: In other words up to 90% of the cost is paid in installments. The same applies to purchasing a house which is done through cheap mortgage loans. The second unhappy group is the owners of large and small enterprises, manufacturing and services and businesses. This group also always wants to use the financial resources of the banks to manage the current affairs and development of their businesses, which the banks do not fulfill all their requests.

In addition, although the cost of financing by banks in all periods is much lower than inflation and other financing options, but based on the unprofitability of businesses they expect more subsidized interest rates. In addition to the above two groups, representatives of the establishment from top to bottom express dissatisfaction with the banks. This group, for their part, is under their mission due to the pervasive desire to use banking resources in resolving matters, and they have a very high echo in expressing their criticism to welcome the above two groups and express their sympathy with them. Of course, at the top of this group are the MPs to prove their efforts to pay attention to the rights of their patrons, namely the voters.

Of course, a brief glance at the next rounds of election adds to the intensity of this announcement of presence. The mass media of video, print and virtual communication, especially the IRIB (radio and television), in line with the prevailing atmosphere and in compliance with the likes of all dissatisfied and critical of each other in the range of criticizing the banks, publish content with maximum excitement.

In most of the obvious effects of the presence of private banks in the banking system, especially the comprehensive in person and online banking services using information technology, attention to modern marketing principles and customer relationship management are ignored.

What are the achievements of private banks in Iran? Very positive developments in good governance, improving transparency and reporting and providing modern banking services amidst the demand for cheap resources are among the other services of private banks. They have been constructive and positive. They have also brought state-owned and private banks to the arena.  

Today, many problems in the Iranian economy are related to the state of the banking system, especially private banks. What do you think?

Note that today the government still has the main share in the management of banks, including the sources of deposits and bank assets. Although it is not possible to address this issue in this article, in a word, private banking in the country still has no appropriate place. In addition to large state-owned banks and affiliated banks, the so-called privatized banks are still governed under strong government management. The performance and evaluation of banks has a significant impact.

 The problems of todays economic turmoil have not arisen recently, but are the result of the cumulative effects of more than half a century of performance. If today we see widespread economic problems and their consequences in peoples livelihoods, unemployment, environmental crisis, water crisis and disorder in governance processes and we do not get rid of the unbelievable categories of astronomical rent distribution such as energy rent, all such troubles affect the current policy-making and management of the countrys banks it has left its unfortunate impact in the banks.

Every year, millions of interest rate contracts partially lead to non-performance and a percentage of them lead to enforcement and acquisition. Those who have developed their business well and have made good use of their banking resources and achieved successful ventures and have become affluent classes usually do not regard even a small role for the banks.

They see their savings today an outcome of their hard work today and expect banks to provide them with higher resources and grow exponentially. This situation seems to continue to lead to competition, abuse, resort to all kinds of relationships, mainstreaming and pressure.

The resources thus obtained by the beneficiaries will have no reason for voluntary refunds and returns, and a significant amount of funds will either be converted into various assets by users or deposited as bad and unproductive assets in bank accounts. This road is unfortunately designed one-way and this rule is the source of all grievances, and disputes. 

What to do?

There is a solution. Time and again in countries with different and diverse conditions, the level of development, governance structure, economic, social, political conditions, reforms have led to relatively successful results. We do not need to invent this wheel, it is enough to design a special plan according to the local characteristics and pay special attention to the conditions in which we are, by carrying out comparative studies and utilizing the existing global experiences, and implement it in the country with appropriate phasing. In the first step, of course, it is necessary to prepare and pass appropriate legislation for policymakers and monitors of the monetary sector with the characteristics of independence and authority and governance structure. Adequate conditions in the first stage will be to create the necessary understanding and eliminate the existing misunderstandings and inevitably stop the current interventions of the governing bodies including the legislature, the government and relevant organizations, the media, especially the IRIB and the press.

Finally, a reform plan should be prepared and implemented by formulating an amendment plan with the strategy of the Central Bank as a policy maker and supervisor with the participation of the banking network, including the owners and managers of the banks reach the appropriate requirements and options. Then, within the framework of the Central Banks guidelines and the participation of banks, an operational plan should be prepared and approved. Then, according to the prepared plans, with appropriate staging and scheduling, separate short, medium and long-term measures of the plans should be implemented so that at the end of the plan implementation period, which may last up to five years. The countrys banking system, along with performing its daily duties and services, should have the minimum acceptable conditions with gradual improvements and reforms. Certainly, the frozen resources resulting from 40 years of unfavorable and undesirable actions and mismanagements cannot be adjusted and compensated quickly and in the short term.

 

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