The Complete Bankruptcy Of Iran’s Banking System – OpEd


Iran’s economy has faced a multitude of crises since the beginning of the rule of the mullahs. The regime’s founder Ruhollah Khomeini did not believe that the people have the right to have a say on how the economy is run. He forfeited the country’s resources to a gang of thieves, who looted the country’s wealth to enrich themselves and carry out their destructive projects. This approach to running the economy created various crises. Some of the consequences are the destruction of domestic production and the unfair distribution of resources.

The banking crisis is another consequence of the corruption economic system of the mullahs’ rule. Three decades into the mullahs’ rule, the regime’s own experts had to admit: “The country’s banking system in recent decades has been faced with issues such as the nationalization of banks, the imposition of the government’s mandatory policies, government management, and mandatory control of bank interest rates. Examining the conditions governing Iran’s banks shows that Iran’s economy has experienced banking crisis conditions…” (source: The Journal of Economic Studies and Policies, 2010).

Four banking crises in 44 years

In the beginning of the 2010s, the crises were so intense that the regime could not deny them. In a report in the middle of the 2010s, the Central Bank admitted to four banking crises. On July 24, 2017, the state-run Eghtesad News website reported: “In a study, the official publication of Central Bank announced the occurrence of four fevers. Based on this research, the first fever occurred after the Islamic revolution and with the occurrence of an imposed war [Iran-Iraq war]. In the second phase of this fever in the years 1984 to 1989, the economic recession continued with the drop in oil prices. Fragility or the third fever started in 1994 with the failed currency unification and lasted until 1996 with the growth of liquidity and the increase in the price of the currency. In the last case, from 2008 to 2013, economic sanctions and the reduction of international communication caused the currency crisis and the high growth of the banks’ debt to the central bank.”

This report further stated that “The occurrence of this crisis was accompanied by four major economic realities, the occurrence of the Islamic revolution, the temporary closure of banks, the nationalization of banks and the occurrence of the Iran-Iraq war. During this period, the debt of the banks to the Central Bank increased by about 50%.”

The other consequences of the unbridled looting of the national wealth by the regime require a separate discussion. But until today, these crises have turned into a confusing mess that no one can control. Some of its key indicators are the growing liquidity, accelerating inflation, the constant depreciation of the national currency, and worsening economic recession.

Banks plagued with debt

At the end of the 2010s, the situation was becoming unbearable. Inflation and unemployment along with international isolation and the regime’s continued warmongering and terrorism had bent the backs of government-run banks and financial institutions tied to the regime’s supreme leader.

These banks were effectively bankrupt. With Ebrahim Raisi becoming the regime’s president, the regime engaged in a massive propaganda campaign to cover up the banking crisis. Every bank must have at least 8% liquid assets to make sure its customers can withdraw cash. But many of the regime’s banks not only don’t have enough liquidity but also their entire assets are negative. Their liabilities are larger than their equities. This means that these banks are effectively bankrupt. Some of these banks include Ayande, Dey, Sarmayeh, and even Bank Melli. In the past year, the governor of the Central Bank has warned these banks to implement reforms.

On September 23, 2023, Tejarat News reported, “The Governor of the Central Bank gave them until the end of September to solve the problem of banks’ imbalance. But what was the result of this ultimatum?… He emphasized that if a bank is always imbalanced and at the same time wants to continue its activity, we must proceed towards determining the tasks and liquidation of that bank.”

It was clear that these threats would not result to much. According to the Tejarat News report, “The heads of the government and the Central Bank are threatening the imbalanced banks while the roots of these imbalances in many cases are in the policies of the government and the Central Bank itself, and the bank managers do not have much role in their current alarming situation.”

These policies include forcing the banks to give loans to the government and the government not paying its debts to the banks. According to the CEO of Tejarat Bank, the government does not even recognize that it has debts to the banks. Moreover, the board of directors of the banks pay out loans to themselves. According to the declared list of the Central Bank, nine banks and financial institutions have paid out 1,510 trillion rials in loans to themselves.

The situation has reached the point that the disputes between the Central Bank and the Ministry of Economy are becoming evident. On August 24, 2023, the public relations of the Central Bank declared, “The Governor of the Central Bank said: ‘A large part of the financing of the government is also on the shoulders of the banks; It is natural that these cases increase the dissatisfaction of banks; The government is one of the most important factors of bank dissatisfaction.’”

Now, months after the ultimatum and almost a month into the new Persian calendar year, the banking crisis is more evident than ever. According to economics professor Albert Boghozian, the forced government loans have caused the mega-imbalance crises in the banking sector. Therefore, the banking problems are caused by bad management, not economic crises. On March 29, 2024, Eslahat News quoted Boghozian as saying, “The imbalance of the banks is the result of non-repayment of the loans of the bank’s super-debtors. We should ask each and every member of the bank’s board of directors why they gave loans that they knew were not going to be returned to the bank. These bank super debtors receive loans by order of the board members… Banks have also given loans to the government, which the government does not pay back.”

Shamsi Saadati

Shamsi Saadati writes for the PMOI/MEK.

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