IslamicFinance.de

Bankers in Iran are hoping that new President Hasan Rouhani will reform the banking industry, which is saddled with dangerous levels of bad debts. A veteran of the Iranian banking sector said that at least 50 per cent of the financial institutions do not deserve to be saved. Over the past eight years both public and private banks have run up huge amounts of bad debt. These are now putting a heavy strain on the government's shrinking financial resources as it protects the most indebted players from bankruptcy. Bad debts in the banking system are estimated to average about 20 per cent, with big institutions Bank Saderat and Bank Melli in the worst positions. Interest rates on deposits will need to rise in order to combat inflation and absorb excess liquidity in the economy. Rates were raised in 2012 to 21 per cent for the same reason, but to little effect, and the cost of funding for banks is high.