The merger of banks affiliated with the armed forces had the least consequences

According to IBNA, on the last day of the fall of 1999, while the people were preparing for Yalda night, the Governor of the Central Bank announced the completion of the project of merging 5 banks and credit institutions affiliated with the Armed Forces in Sepah Bank and said, “Today with meetings “One of the banks closed the case of the biggest program to reform the banking system.” This action has been repeatedly emphasized by the Supreme Leader and now the Central Bank has completed it. But why was this case important for our banking system and what were the consequences and consequences of its operation or not?

Hojjatullah Farzani, a monetary and banking expert, explained this to IBNA and said: “The banks that were merged were not healthy banks in terms of financial statements and had imbalances.” So in such a situation, one of the things that could have been done, before the bank was dissolved and had consequences, and these consequences would spread to the whole community and raise concerns, was for these banks to merge and, consequently, for economic consequences. It was reduced and fortunately it was done.

Farzani continued: “In terms of financial statements, some of these banks were loss-making banks and were subject to Article 1481 of the Commercial Code, which either had to be dissolved or reduced capital.”

He added: “The banks in question did not have the necessary capital adequacy in the banking rules, and only one or two of them had a more favorable situation that could be somewhat skewed.” Therefore, several banks were merged and covered to be in the heart of a state-owned bank.

“As you know, there is no profit or loss in state-owned banks, because these types of banks operate not for profit and loss, but to provide services,” said the monetary and banking expert, referring to the strengthening of banking services in the state.

Farzani added: “As a result, with the merger of these banks, the expected losses for the banks that did not perform well were charged in the heart of a state-owned bank and somehow covered up.” However, this may have consequences in the future.

The economic analyst added: “Of course, in my opinion, some of the managers of these banks should have been held accountable for why their banking resources did not go in the right direction and caused losses.”

Positive points of merger of banks affiliated with the Armed Forces

Farzani further said about the positive points of the merger of banks affiliated with the Armed Forces in Sepah Bank: First, it was a good experience in the Central Bank because before this, the literature of this action under the title of resolution or the financial system and the financial chapter of banks in Iran There was no place. But we now know full well what the consequences of such an action are and what areas need to be considered for its success.

He referred to the literature on the financial settlement of banks in such a situation: This international literature, which was presented almost from 2009 onwards, after the financial crisis and the numerous bankruptcies of American banks in the world, had never happened in Iran. Therefore, with this integration that is now taking place in Iran, it can be said that the issue of “financial settlement” in the Iranian banking literature has become somewhat indigenous.

The monetary and banking expert continued: “Now the Central Bank is completely surrounded by this knowledge and knows what information and actions it needs from the perspective of management, manpower and information technology, as well as from the perspective of organizational structure.”

He added: “So, if the central bank wants to talk about mergers at any other time, because it has gained experience, it can step in much more easily and with more accurate information, and in addition to more regular asset management, for ambiguities.” Have operational answers.

In response to the question whether the merger of banks affiliated with the Armed Forces in Sepah Bank had positive consequences in general, Farzani said: In this case, we must say yes. Because if we wanted to liquidate the loss-making banks, it could have several effects. Imagine, for example, that one of these banks suddenly went bankrupt. In this case, because that bank had the license of the central bank and the official title of the bank, people’s trust in other banks was also overshadowed and this led to the risk of transmission to other banks and as a result, people rushed to other banks to withdraw their deposits. .

Explaining the risk of this action, he said: “Banks usually receive people’s deposits and deposits are usually without maturity and on demand, meaning that whenever you want as an investor, you can withdraw your resources from the bank and on the other hand, the liquidity bank It facilitates these deposits, and because the facility is usually long-term, such as a 5-year production facility, there is a difference between maturities and facilities. As a result, if people are rushing to get their deposits right now in a healthy bank, the bank cannot be held accountable. Because those resources have been used in the form of long-term facilities.

Farzani continued: “As a result, to prevent this from happening, the Central Bank merged banks and financial institutions, and the ‘Panzi game’ (granting interest from the original deposits) due to unhealthy competition in deposit rates and the banking network.” Overshadowed, stopped.

In the end, he said: “In fact, there was no option but merger, and in the current situation, the best performance of the central bank was the merger of banks and financial and credit institutions, the effects and consequences of which were minimized.”

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