The end of the backyard of Natraz banks with daily registration of overdrafts

With the daily registration of overdrafts and strictness in repo, the brakes on money creation of non-performing banks are pulled.

According to the reporter of Mehr, the country's monetary policy has faced a serious and structural surgery in the discipline of the banking network at this critical moment. For many years, the banking network was known as one of the main centers of the rapid growth of liquidity and the driving engine of inflation; A mechanism in which highly unsecured credit institutions and banks, including Aindeh Bank and other high-risk financial institutions, imposed the costs of their mismanagement on the entire economy by relying on short-term sources, excessive credit creation, and finally endless borrowing from the central bank. The new approach of the monetary supervisory body shows that the era of tolerance for overdrafts and concealment of imbalances behind vague financial statements is over, and by focusing on limiting the growth of the balance sheet, strictness in open market operations and definite and daily recording of debts, a strict discipline will rule the interbank flow.

The reactive framework of the central bank and the priority of resilience

Abdul Nasser Hemmati, the head of the central bank, has announced the policy response framework of this bank with the main goal of curbing the acceleration of inflation and strengthening the resilience of the economy; A framework that is set based on available foreign exchange reserves. The central importance of this policy is in the careful selection of tools that directly affect the bottleneck of liquidity creation. By granting each new facility, banks actually introduce new money into the economic cycle, whose rapid growth is considered the fundamental root of inflation in Iran. Limiting the growth of banks means slowing down the entry of new money into the economy; A vital measure that helps maintain the value of the national currency, although in the short term it may cause difficulties in accessing banking facilities.

This policy response is based on three fundamental axes. The first axis is relying on the limits of balance sheet growth, in which the central bank sets a certain ceiling for the growth of each institution's balance sheet, and crossing this ceiling requires stopping new loans. The second axis is to strengthen the quality of assets in order to ensure the timely repayment of facilities and prevent the generation of outstanding claims. The third axis also focuses on the financial health of banks so that monetary institutions do not have to borrow from the central bank to solve their deficit. Risky borrowing that leads directly to an expansion of the monetary base. In addition, the emphasis on available foreign exchange reserves sends a clear message to economic activists that, along with the intelligent management of the foreign exchange market, curbing the internal engines of money creation is a definite priority.

The implementation of this disciplinary model is always associated with a long-standing conflict between the needs of the real sector of the economy and the requirements of inflation control. On the one hand, manufacturing companies in economic hardships have a vital need for working capital and continuous credit lines, and on the other hand, the continued unbridled growth of lending can impose heavy waves of inflation on the society. Although capping the balance sheet has a history of many years in monetary policy, the coordinates of the new caps, the way it is operationalized and the guarantee of its uncompromising execution will determine the final effect on curbing price jumps and balancing the facility market.

Based on the legal and banking analyzes of monetary experts including Ali Nazaftian, balance sheet control has become the most effective lever of the monetary watchdog in recent years to prevent deepening of financial discontinuities. The bank's activity has a dual nature; On the one hand, it equips people's resources and other financial tools, and on the other hand, it allocates these resources in the form of various facilities and assets. If the expansion of this process goes beyond the actual capacity of the financial structure of the bank, it will lead to the unbridled growth of credits.

The main crisis occurs when a bank becomes dependent on the central bank or borrowing in the interbank market to maintain its cash flow. In such circumstances, a bloated balance sheet is never a sign of business prosperity, but rather a warning sign of deepening imbalances and a dangerous reliance on short-term costly resources. On this basis, the existential philosophy of balance sheet control is summarized in three fundamental axes: restraining the growth of liquidity, protecting the stability and health of the banking system, and blocking the path of unbalanced growth of assets and liabilities.

From asset control to debt control

The fundamental change in the amendment of the rules governing the control of the balance sheet of the country's banking network, which was approved at the end of September and became effective in the fall, lies in the fundamental rotation of the center of gravity of this supervision. In the traditional model of the past, the regulatory focus was only on controlling the growth of some items on the assets side, but in the new amendment, the net debt items are included in the focus of quantitative measurement.

To put it more clearly, the main question of the monetary watcher from now on is not only focused on the growth rate of assets, but the main focus is on the roots of this growth; From where the said assets were created and by imposing what amount of obligations and debts. In this new framework, the state of deposits of non-governmental entities, the net debt of the bank to the central bank and the debt to other credit institutions become vitally important. In this way, a bank can no longer hide its critical dependence on overdrafts and credit lines of the central bank by pretending to have regular growth in assets.

The end of the same ceiling and the separation of Salem Bank from Natraz

One of the turning points of this policy is the transition from general capping and moving towards individual capacity measurement for each bank. Determining the permissible net debt limit is based on the score of evaluation criteria and liquidity growth goals; Therefore, a healthy bank that has adequate capital, good risk management and high asset quality, should not and cannot be measured in the same scale as a bank with a lot of doubtful receivables and structural deficits.

This assessment is based on three pillars: banking health by measuring technical ratings, capital adequacy and the amount of overdrafts; Credit performance by evaluating the ratio of facilities to deposits and orientation towards the production chain; And finally, the level of professional interaction and the speed of action in clarifying information. This separation shows that the balance sheet control policy has evolved from a simple administrative prohibition to a combination of prudential discipline and intelligent credit management, and it will not in any way mean closing the deposit attraction path or completely stopping lending.

From notification of ceiling to systematic monitoring

The effectiveness of this framework is realized only if it passes the level of administrative correspondence and distance evaluations. The launch and deepening of monitoring systems such as the Integrated Monitoring System (SIN) has replaced traditional estimates with data-oriented ones. Continuous, real-time monitoring and online processing of figures allows the supervisor to activate preventive measures as soon as the indicators of an institution approach the critical limits. This system-oriented system doubles the necessity of complete transparency of evaluation formulas and weights for bank operators so that the monitoring process remains completely objective, documented and free of ambiguity.

Why Natraz Bank should be more limited?

The logic of prudential supervision dictates that a bank that has frozen assets and whose daily life is linked to sucking interbank resources should be prevented from continuing unregulated expansion. The blind increase of the balance sheet in such banks gives more disastrous dimensions to the imbalance. Also, in the principle of supervision and health, there is no distinction between public and private ownership; Both deal with the risk of public deposits and must follow the same disciplinary criteria. Of course, it is necessary to separate the effects of the imposition of debt relief and government-approved policies on banks from the commercial and discretionary decisions of their management and make it a fair judgment basis.

performance guarantee; The end of the period of mere recommendations

The new monetary regulations are the end of the age of recommendation and the beginning of the decisive structural punishments. In case of banks disobeying the set limits, a package of preventive measures and regulatory punishments will be applied, which obligates all the bank's elements, from the treasury to risk management and information technology, to comply with the permitted limits.

Closing the avenues of abuse, tightening repo and above all, recording daily overdrafts as definitive and non-dischargeable debt effectively closes off any safe margins and backyards for insolvent banks. In this paradigm, curbing the acceleration of inflation is no longer a distant aspiration, but the inevitable product of monetary discipline, blocking the engines of creating unhealthy credit and fundamentally refining the balance sheet structure of the banking network.