Banks Need 470 Trillion Tomans to Compensate Accumulated Losses

The head of the Tehran Chamber of Commerce states that 470 trillion tomans are needed to compensate for the accumulated losses of 14 banks in the country. Mahmoud Najafi Arab said on Tuesday, November 10, that banks are borrowing from the Central Bank to secure their resources, but 'this leads to inflation while financing should be non-inflationary.' Mohammad Reza Farzin, the head of the Central Bank, also stated on November 17 that there is an additional withdrawal of 470 trillion tomans by banks from the Central Bank, which, with the money they receive from the interbank market, reaches 750 trillion tomans. He emphasized that 'the Central Bank should not create money to compensate for the accumulated losses of banks, as it has inflationary effects, and the banks' claims against the government should be settled.' Iran's government debt to banks has increased 'two and a half times' over the past three years. The latest report from the Central Bank shows that the government's debt to the banking system peaked at 1,654 trillion tomans in July, which is two and a half times more than at the beginning of Ebrahim Raisi's administration. 30% of this debt is owed to the Central Bank and 70% to other banks in the country. Over the past years, while inflation has been over 40%, the government has forced banks to provide loans at half the inflation rate, and since the U.S. withdrawal from the JCPOA in May 2018 and the imposition of sanctions against Iran, the national currency has lost 90% of its value. Despite the continuous decline in the value of the national currency, the government has intensified borrowing from the banking system, and banks have also increased borrowing from the Central Bank. Banks in Iran have also taken actions to compensate for the losses resulting from this situation that are practically outside their core duties and activities. For example, there have been recent reports of banks entering real estate purchases, importing and exporting goods, and currency trading of commercial goods. Recently, the Central Bank of Iran confirmed that banks lent 91 trillion tomans to their employees and subsidiary companies last year.