Al Monitor

#Iran’s debt market emerges as key to economic future

The rising issuance of sukuk and Treasury bills in the past three years in Iran is seen as evidence of the success and allure of the Iranian debt market. Perhaps the most important factor contributing to the sales of bonds has been the lack of funds to private contractors and creditors. The Iranian government's budget for the public sector is allowed to issue a significant amount of debt securities. Although this helps state-run organizations sponsor infrastructure projects, it might bring about risk of default for future governments. An analysis of budget figures shows that the government is always forced to settle the past matured securities with the issuance of new ones. Government commitments are accumulated and rolled over to later years. The administration is due to pay its outstanding debt obligations, totaling $7 billion and can issue about $10 billion worth of sukuk.

Without reforms, #Iranian banking crisis looms

In Iran, concerns are growing that banks may be facing the fate of credit and financial institutions (CFIs) that are on the verge of collapse. The Central Bank of Iran (CBI) is under rising pressure from the parliament to immediately regulate these nonbank credit institutions, as an increasing number of depositors protest delays. Now, there are fears that banks could be next. To avoid this scenario, pundits are suggesting that the CBI be granted more autonomy by the parliament so that it will take more serious disciplinary measures. The administration of President Hassan Rouhani has been trying to pass the bill in the parliament, but certain influential bodies have blocked the legislation. The huge government debt is putting excessive pressure on the banking system, but the Iranian public still trusts banks, even as many CFIs have collapsed.

Why do #Iranian #banks remain stuck with toxic assets?

On Feb. 26 the Iranian government got the parliament approval to sell a total of 10 trillion rials ($308 million) worth of excess properties owned by its ministries. The raised money is expected to help shore up the troubled Post Bank of Iran and the Cooperative Development Bank. According to economic newspaper Donya-e Eqtesad, toxic assets account for 40-45% of total banking assets in the country. Nearly 15% of these assets consist of immovable assets such as land and buildings. The rest consists of nonperforming loans and government debt. The sale of at least 33% of the surplus assets could have taken place in the fiscal year running to March 20, but banks eventually decided to find a legal way to postpone the sale process. Real estate expert Farhad Beizaei accused banks of wasting time so that they can sell properties at higher prices next year.

Iranian banks on shaky ground

The Central Bank of Iran (CBI) and CEOs of commercial banks reached an agreement that the institutions should not offer a deposit rate of more than 22%. The CBI has focused on restricting the monetary base and raising profit rates on participatory loans to curb inflation over the past 18 months. The policy has been a successful attempt as inflation dropped from 34.7% in the year up to March 20, 2013, to 15.8% in the year up to Feb. 20, 2015. However, Abbas Kamrei, a board member of Bank Melli, the largest state-run commercial bank, criticized CBI's interest rate policy as incorrect. He urged CBI officials to take into account the public expectations from banks.

Islamic banking gains ground in Turkey

Turkey’s government has moved to expand Islamic banking by inviting public banks into the sector. Earlier this month, the largest state-run bank, Ziraat, received approval to establish an Islamic unit with $300 million in capital. Ziraat has nine months to establish the new bank. But a key question remains unanswered: Where will the capital come from? If Ziraat’s interest-based earnings are considered illicit, how is it going to establish the capital of an interest-free bank? To resolve the conundrum, the Treasury is reportedly planning to provide the required capital although it also operates on the basis of interest. Meanwhile, the government has already submitted a bill to parliament to clear legal hurdles in Vakifbank and Halkbank’s path to Islamic banking.

Hamas Faces Financial Crisis

The Hamas government relies heavily on the taxes and tariffs imposed on goods flowing through the crossings with Israel and the tunnels with Egypt to cover monthly costs and payments for governance. The Hamas government taxes the majority of the Egyptian products to raise revenue, while the taxes on the Israeli supplies, including basic goods, go to the government in Ramallah. Now, the supply of goods smuggled from Egypt through underground tunnels has nearly come to a halt, severely exacerbating the economic hardship already being suffered by the Palestinian residents of the Gaza Strip. Tax receipts from goods entering through the tunnels account for about 40% of the government's general revenue. Thus, as a result of the tunnel closures, the government has been forced to borrow from the National Islamic Bank in Gaza to pay the salaries of local staff.

Tunisians Look to Islamic Finance To Address Economic Woes

In Tunisia, the development of Islamic banking and Islamic insurance primarily depends on the introduction of a law that is more in line with market needs and expectations. Still, Mahfoudh Barouni, an expert in banking and finance, believes that the imperfections of the existing law have not so far hindered the smooth development of Islamic finance. In the past, there were already laws governing the sector that had been drafted according to market needs, but this legislation did not actually govern the Islamic finance sector. Currently, there are texts that legislate Islamic finance and grant all Tunisians the freedom to choose between Western and Islamic finance. Speaking on the topic of Islamic insurance, the CEO of Zitouna Takaful, Makram Ben Sassi, recalled that this business has existed in Tunisia for 30 years. Yet, the real problem is that there is a lack of awareness and responsibility rooted in the mentality of Tunisians in general.

Questions About Practices Of Private Iraqi Banks

Private banks in Iraq have almost utterly ceased to fulfill their traditional functions, e.g. giving out loans, lending credit and issuing letters of credit. The reason is the risk of default. That is why Iraqi private banks resort to participation in the currency auction regularly held by the Iraqi Central Bank instead. In order not to face defaults on payments, they demand exaggerated guarantees for the granting of any loans to local investors. Banking experts say that the value of some loans is not able to cover more than 40% of the guarantees which are demanded by the banks.

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