Minister of Economy: The Government Owes Banks More Than 100 Trillion Tomans

Ali Tayebnia, the Minister of Economic Affairs and Finance in Hassan Rouhani's government, announced that the government owes more than 100 trillion tomans to the country's banking system. According to a report on Tuesday, April 24, Nasim Online, Mr. Tayebnia made these remarks during a public session of the Islamic Consultative Assembly while discussing the revenue section of the budget bill for the year 2016. While the representatives of the parliament agreed to remove Article 19 of this year's budget bill in this session, the Minister of Economy opposed the removal of this article. This bill allows the government to reform financial statements and increase the lending capacity of state banks from the surplus account resulting from the net evaluation of the foreign assets of the Central Bank of the Islamic Republic, allowing a maximum of 500 trillion rials for settling the Central Bank's claims from state banks and the banks' confirmed claims from the government. During his speech in the parliament, Mr. Tayebnia identified the 'largest and most important' current problem of the country's production units as the 'provision of financial resources' necessary for carrying out economic activities, which is typically provided by the banking system. He added, 'The banking system of the country currently cannot adequately fulfill its duty to finance production units for various reasons, and our banks are facing a capital shortage.' Tayebnia introduced the 'capital adequacy ratio' in Iranian banks as about four percent, which is significantly below global standards. He further explained that 'more than 100 trillion tomans of government debt to the banking system and over 90 trillion tomans of non-performing loans of banks exist, and a significant portion of banks' resources is blocked as excess assets.' The public sector debt includes the government's debt plus the debt of state-owned companies and institutions. According to the Minister of Economy and Finance, the financial resources provided by banks 'cannot meet the needs of the country's production sector at all.' He continued that in cases where banks intend to act as national intermediaries with foreign banks, 'due to unsuitable financial statements and capital adequacy issues, they cannot attract the necessary financial resources from abroad, and even if they can, foreign banks do not accept our banks' guarantees and expect the government to issue a state guarantee for them.' Increasing capital from the resources obtained from the revaluation account in state banks and providing it to banks after settling their debts to the Central Bank is among the solutions proposed by the Minister of Economy to enhance banks' ability to provide financial resources for producers. According to Mr. Tayebnia, through this method, the balance sheets of state banks will be reformed, the capital activity of banks will increase, and consequently, 'the lending power of banks will increase, and the Central Bank's balance sheet will also be reformed.' Reports indicate that Iran's government debt to banks has been on an upward trend, increasing from 39.4 trillion tomans in 2011 by 43 percent to 56.7 trillion tomans in 2012 with a 28 percent increase, to 72.8 trillion tomans in 2013 with a 38 percent growth, reaching 100.4 trillion tomans in 2014. The government's debt to the banking network was also reported to be 102.9 trillion tomans in June 2015.