Will Iran’s banking sector collapse?
While Iran is certainly on the brink of a major banking crisis, the likely outcome won’t be financial collapse but rather a restructuring of banks.
Iranian and international experts have opined for some time that Iran’s banking sector is at risk of a financial collapse due to toxic assets. It is no secret that over the past decade all Iranian banks were negatively affected by sanctions, internal mismanagement and corruption. Another disturbing factor in the financial sector has been the presence of unlicensed financial institutions that distorted the market and created unregulated competition for regulated banks. Furthermore, corruption and government interference have led to the accumulation of tens of billions of dollars of bad debts that will continue to put pressure on the balance sheets of Iranian banks for some time to come. Should these toxic assets lead to a collapse of the banking sector, Iran will experience major economic hardship.
Before addressing the risk of collapse, it should be noted that the Central Bank of Iran (CBI) is midway into a reform and restructuring process that is aimed at improving the conditions in the banking sector — a process that was discussed in Al-Monitor recently.
