Following CBI Approval Karafarin Bank’s Capital to Reach IRR4 trillion

The Financial & General Assemblies Affairs Deputy of the Karafarin Bank commented: “Following the agreement in principle of the Board of Directors, capital increase shall occur and be paid for (to reach IRR4 trillion), via revaluating assets, matured claims and cash payments of the shareholders of properties. Karafarin Bank revaluated its assets with the aid of Tehran Province Judicial Experts for Tehran properties and expert committees to reevaluate its properties and goodwill in other provinces. Hence, the amount of IRR16,500 billion was identified as the Bank’s excess revaluated assets and goodwill, together a feasibility report for increasing capital with IRR15,000 billion of capital increase from current claims, cash payments, forex provision was submitted to the Bank’s inspector who then confirmed this in May of current year. Following assessments of the experts of CBI, the mentioned report was approved by August 22nd and preparations for holding the Extra Ordinary General Assembly shall be made following the approval of the Securities & Exchange Organisation.” Public Relations Department reported.
Referring to the effects of capital increase on the Bank’s performance he commented: “Capital structure is one of the most important indexes of companies, especially banks, which can directly affect their performance. Capital increase and adjustment can increase their capabilities to offer loans and invest and to strengthen their operational ratios. In other words, an appropriate capital structure, which is directly related to the banks’ operations, is vitally important. In fact, it is not possible to develop banking operations without increasing their capital and improving their capital structures. The last time Karafarin Bank increased its capital was in 2014-2015, when its capital reached IRR8,500 billion. Although according to CBI statistics, since that time Iran has been through high inflation, Karafarin Bank’s capital had remained unchanged. This has had negative impacts on the Bank’s performance and its essential ratios. In fact, during these years, the Bank had been under huge amounts of pressure. Thus, in spite of the ever increasing demand of industries and companies for finance, in the Bank’s financing capability (which is the main source of its income) had remained constant over the past seven years. We expect that following the Bank’s capital increase and improvement of its essential operational ratios, to see a considerable growth financing capacities. The industries and various companies and other borrowers, as well as depositors and shareholders shall also feel the positive impact of this capital increase.
Commenting on the impact of capital increase on the financial ratios of banks he added: “Based on CBI regulations which have essentially been derived from international regulations such as standards of the Basel Committee, etc. certain criteria have been set for reducing the risk and sustaining the health of banks. Some of these include: profitability, lever, fixed assets, non-performing claims and capital adequacy (CAR) ratios. Capital adequacy ratio is possibly the most important ratio which constantly affects the operations of banks. In accordance with the above regulations and in managing their financial risks, the Banks must sustain a certain portion of their capital which may be used to cover unforeseen losses. Although CBI regulations require this ratio to be at least 8%, yet CBI can raise this and other ratios under special cercumstances, in order to sustain the financial health of bank. According to CBI and Basel Committee, capital adequacy ratio directly affects the banks’ capabilities to offer banking services. Some of the main impacts that this ratio could pose on banks include: capability to utilise their resources and to finance, to increase their market share, boost their profitability and returns.”
Pointing out to the transformations in Karafarin Bank following the capital increase from IRR8,500 billion to IRR4 trillion he commented: “Karafarin Bank’s CAR is currently approximately 7.5%. This ratio shall be improved by 100% to reach approximately 15%. Furthermore, this ratio shall provide a safe margin for the Bank’s operations. Furthermore, the Bank’s regulatory capital which is the basis for offering loans and facilities and for investments shall experience a 185% increase. This will increase the Bank’s financing capabilities which shall lead to increased profitability. In fact, the tripling of the Karafarin Bank’s regulatory capital is as through breathing new life into its body. The falling of fixed asset ratio from 85% to 50% which is another outcome of capital increase, shall allow the Bank to develop its operational infrastructure on the one hand, and shall make it immune against tax on its excess fixed assets. The Bank’ capital increasing 2.5 times over in the first stage and by five times in the second stage shall reduce its risks and hence, it shall be able to offer a wider range of better services to industries and various companies.”
Referring to the impact of capital increase on the Bank’s ratios, especially during the current year, he stated: “One may argue that capital increase and improvement of financial ratios have the biggest impact on current and potential customers of the Bank. As the variety of the Bank’s operations increase, so shall its ability to offer a wider variety of services and loans to various industries. Another positive impact of capital increase is that Karafarin Bank shall be able to introduce various new packages to special industries such as knowledge-based companies and companies which are more vulnerable to events such as the coronavirus pandemic. In other words, Karafarin Bank’s operations shall increase by three times and it shall sustain its current clients whilst attracting new ones by offering them high quality modern banking services.”
Having outlined the latest performance of the Bank for the first four months of the current year, he continued: “The Bank’s three-month report which reflects its operations for the first four months of the year and has been disclosed in the Codal Database (which hosts announcements and financial statements of traded companies in the Tehran Stock Exchange) is along with its capital increase, a clear reflection of Karafarin Bank’s accelerated move towards progress. In terms of resource utilisation, attracting more deposits and improving the quality of services offered to customers, our resources increased by 56% in July this year within four months. This increase is more than average performance of other private banks in utilising resources in the first four months of the year. In addition, loans granted in the same period increased by 15%. Here also, Karafarin Bank has demonstrated a stronger performance compared to other private Iranian banks for the same period. Although we expect that following capital increase and the removal of limitations in granting loans, we shall be able to grant loans to a much larger extent during the current year, our strategy in this regard is not to sacrifice quality in favour of quantity. The managers of the Bank are concerned about customer credit rating more than ever before. Reports disclosed by the Bank show that non-performing to total loans ratio stands at approximately 9% which is half of average in other private banks. This ratio has declined by 1% in the past four months, which demonstrates the Bank’s special attention to the quality of customer credit rating.”
Referring to Karafarin Bank’s performance Dr. Mahmoudpour explained: “Our performance in recent months show that we are on a targeted path with a specified and transparent strategy. Performance statistics of the Bank are a clear reflection of this fact. Capital increase which will hopefully be approved by the Securities & Exchange Organisation and win the support of the shareholders, shall open new avenues for the Bank, marking a new movement which directs the Bank towards even more transparency and growth.