Fortunately, the attempt of the Ministry of Economics and Financial Affairs in this regard and their approach for the purpose of developing the debt markets, has become successful and the establishment and development of the debt market during the recent period has resulted in the reduction of the share of the banking network from 90% to 80%, and the differential has been financed by the debt market. The development of the debt market is considered an auspicious matter due to the fact that experts have always been very critical about the banks-oriented nature of financing in Iran especially for macro and infrastructural projects. One of the main criticisms regarding the bank-oriented financing is that banks, due to their structural problems and lack of policies regarding assets and liability management (ALM), face the problem of liquidity crunch and as a consequence in order to keep the deposits and in competition with each other the financing costs for banks and therefore the financing costs from the banks will increase. Weakness in supervision and also non-repayment of accumulated annual obligations of the present government as well as preceding governments to the banks which sums up to one million and six hundred thousand billion Rials have aggravated this chaotic situation of banks regarding their asset and debt managements.
Therefore, in a suitable approach for increasing allocative efficiency of the market and at the same time reducing financing costs, the current government since taking the office has renewed its endeavors to develop debt markets. The first part of the new instruments that were issued in the debt market by the government and guaranteed by the Central Bank, was the granting of one hundred and seventy five thousand billion Rials of treasury bills to government contractors for the purpose of settling the debts of the government to contractors, and by offering these bills in Farabourse, transaction of these securities was initiated in the secondary market as well and contractors can offer these bonds in the Farabourse market prior to their maturity date in order to provide liquidity. Moreover, in the budget of the year 2016 a part of the bonds issued by the government will be related to the “treasury settlement bonds” that will be used in order to settle the “Islamic Treasury bills” and their value has been considered in the budget to be equal to one hundred and twenty five thousand billion Rials. In addition, another part of the bonds issued by the government, are comprised of financing bonds for ministries and financing bond for Ministry of oil and gas issued by the government, of which two hundred thousand billion Rials of bonds have been predicted in the budget of 2016 for this purpose.
With the debt market being developed, in order to maintain their competitive edge in the market, banks, Financing companies and other financial institutions will attempt to develop funds with their previous fixed income and establish new fixed income funds and as a result more than 50 fixed income funds and also close to 15 mixed funds have been registered at the stock exchange and presently the value of the assets of these funds exceeds eight hundred thousand billion Rials.
The most important criticism to this situation is that despite the reduction in banks interest rate, banks still suggest higher rates than the official banking interest rate to their clients and in practice the interest rate has not experience any perceptible reduction. In response to such criticism is should be stated that one of the goals in establishing the debt market was to reduce the allocative efficiency of money and also the cost of financing, which has been realized with the creation of the debt market. However, it should be admitted that this fact has been more effective for governmental institutions and companies that are dependent to the government and still the private sector cannot access financing through the debt market and also small scale financings are not available within the stock exchange.
Moreover, the most important achievements of the debt market has been the financing of the government, and it was the reduction of the effective cost of the financing costs of government’s mega projects that have resulted in the development of the debt market. Also in the year that comes, the government is pursuing to settle a main part of its debt to the banks and also to contractors through issuing debt securities and it seems that the trend in developing debt markets will continue for the years to come. In addition, the most important potential that these markets can create for government financing in the long run is that those foreign investors who are looking for higher rates in debt securities would be able to invest in Iranian debt securities and particularly in government debt securities.
To sum up, we can say that the formation of debt markets is a necessity due to the inefficiency of financing through banks and the damage to resources as a result of inappropriate operations by banks, and fortunately it appears that the government has been taking positive steps in this regard through the stock exchange, especially for financing government projects and those of governmental companies. However, in order to develop further, this market still needs to attract real and legal entities as both borrowers and lenders, an important fact that has been presently neglected in the Iranian debt market and the majority of this market is still monopolized by government bonds.