Privatization of banks in Iran with tens of trillions of tomans in accumulated losses

The Director of Supervision of Financial Institutions of the Iranian Stock Exchange Organization has announced that the government is planning to offer its shares in Mellat, Tejarat, and Saderat banks, and Alborz and Amin Insurance through investment funds at a 20% discount.

In addition to these banks and companies, the government plans to sell its other movable and immovable resources in refineries, companies active in the metals and automotive sectors, and also offer a 20 to 30 percent discount.

It seems that the government hopes that the public will actively participate in purchasing shares of these companies and banks.

The resources allocated in this year's budget from the sale of government movable and immovable property, an increase of more than 10 times compared to last year's budget, amount to approximately 49,500 billion Tomans, which is equivalent to ten percent of the total government budget.

Privatization in recent years

The privatization process has been criticized by economic experts over the past years. A large part of the privatization process has actually involved the transfer of state assets to companies affiliated with the Revolutionary Guard, institutions affiliated with the Supreme Leader, etc., with little actual private sector participation.

Even despite the improper privatization process, the failure to meet planned targets for the volume of state asset sales is also notable.

Last February, the Parliamentary Research Center announced in a report that over the past years, the realization of state property transfers (privatization) has always been much less than the approved budget.

For example, in 2018, around 2,550 billion tomans worth of government property was planned to be sold, but in practice, 377 billion tomans were sold.

Also, last year, the sale of government movable and immovable property was planned to be worth 4,450 billion tomans, but in the first seven months, only 187 billion tomans were sold.

This is while the government plans to sell 49.5 trillion tomans of its movable and immovable assets this year, which is 10 times more than the privatization targets set last year.

Bank losses

The government's rush to sell its shares in banks comes at a time when, according to official statistics published in September last year, nine Iranian banks are loss-making and their accumulated losses have reached 56 trillion tomans, and IRNA news agency reported that this figure is equivalent to more than "all the banknotes and coins in the hands of the people."

Tejarat Bank, in which the government has a significant stake, is facing accumulated losses of 11 trillion tomans and is the second largest loss-making bank in Iran.

Despite the fact that Bank Tejarat is known as a semi-private bank, 17% of Bank Tejarat's shares are owned by the government and 40% of these shares belong to Shakha Adalat, which is also actually owned by the government.

Sabatamin Investment Company, which manages the shares of the Social Security Organization, also manages nearly eight percent of the shares in Tejarat Bank. Also, five percent of Tejarat Bank's shares are held by the Privatization Organization of the country as a proxy. In other words, in practice, 70 percent of Tejarat Bank's shares are directly and indirectly controlled by the government.

Saderat Bank is also among the loss-making banks, and the government directly and indirectly controls more than 58 percent of its shares.

This bank is facing an accumulated loss of 8.5 trillion tomans.

Last September, the IRNA news agency reported that the performance of banks listed on the stock exchange for which information was available showed that among them, 11 banks in the country had accumulated profits and 9 banks had accumulated losses; the total accumulated losses of these banks were more than five times their accumulated profits.

The report adds that banks that are unable to pay interest to depositors are experiencing an increase in their accumulated losses every year.

Source: Radio Farda