Allameh Tabataba’i University Strategic Recommendations for  Administrative Bodies

Allameh Tabataba’i University Strategic Recommendations for Administrative Bodies

Analysis of the Current Financial Status of the Country's Banking Network and the Necessity of Developing Recovery Plans for Banks

Author
Department of Finance and Banking, Allameh Tabataba'i University
Abstract
An analysis of the banking network's balance sheet indicates that the increase in "other assets"—defined as assets unrelated to a bank's core operations, such as fixed assets and acquired collateral—reflects the freezing of resources and a diminished capacity for revenue generation. On the liabilities side, the growth of "debt to the central bank" signals a severe resource deficit and banks' reliance on high-rate overdrafts, thereby exposing the banking network to acute risk. Furthermore, the extremely low share of "capital accounts" on the balance sheet highlights weak capital adequacy, with trends revealing that in recent years, the capital accounts of certain private banks have dropped into negative territory, whereas they have grown in state-owned banks. An evaluation of banking health indicators across four dimensions—asset quality, capital, liquidity, and profitability—also demonstrates that among small, medium, and large banks, a spectrum of orange and red conditions is observed, with even large banks remaining in a fragile position regarding capital and asset quality. Consequently, the development of a "recovery plan" for banks is deemed inevitable. The recovery plan comprises a ten-fold framework encompassing governance, documentation and transparent data, integration, scoping, identification of critical functions, crisis scenario design, determination of triggers and leading indicators, definition of recovery options, testing and feasibility analysis alongside continuous updating, and the design of an internal and external communication system. It is recommended that the Central Bank mandate the implementation framework of this program and enforce resolution plans for banks in emergency status.
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