A Legal Study of Privatization of Banking System

Introduction:

Many governments use the Privatization process to promote their economic system. This process can have a great impact on banking sector. The need for a research in Privatization’ programs, implemented by many developed countries, is felt today more that ever before.  In the state-owned banking system of Iran, there are only 4 banks which are considered as “private banks” The next phase of the privatization of the Iranian banking system will shift a wide range of state-owned banks to the private banks.There are many ways to privatize, and each country has its own set of methods depending on the economic structure and type of enterprises. The most common methods of privatization in the world are:a. Offer shares to the publicb. Offer shares to specific groups.c. Separation of unit's subject to transfer to smaller units and transfer of ownership or management.d. Attracting private sector participation in new investment required by governmental unitse. Transfer of Management or Lease of Assets.The beneficial effects of privatization can only come from properly implemented privatizations. The key is how to privatize?The World Bank recommends in a circular for privatization: The legal framework of the country should support privatization in two respects: First, there may be laws required in the process of preparing banks for privatization and transactions;Second, the overall legal environment should be one in which newly established entrepreneurs can access credit, and compete on an equal footing with the remaining government. There are three types of transfer methods in Iran:a. Sales through the public offering of stock in domestic or foreign stock exchanges.b. The complete sale or supply of block shares through public bidding. c. Complete sale or block sale through negotiation

Theoretical frame work:

 This article will examin different challenges of implementing the privatization process to provide the most adaptable privatization model for Iranian banking system So, what are the legal requirements for the privatization process in a way the banks can benefit from this process? 

This research is under the study of public economic law. From this perspective, although from a methodological point of view, this field does not analyze economic phenomena, the framework of formative interpretations of conventional legal rules in traditional and sometimes Iranian civil law will not be considered.  This is because the legal tools of public economy include a wide range of legal regulations and practices and various issuing authorities and focus on the interrelationship of economics with realistic law. In other words, the banking law system created in the context of economic law, will focus more on managerial and sometimes non-legal analysis, which is defined in line with legal and economic issues.

Nowadays, the function of privatization has become a tool to create a complex ownership structure in privatized banks. While government is taking control of the transferred banks, the process of privatization seems to be far from being realistic. Having said that, the process of privatization can be realized by reducing the role of the government in economic activities and promoting the efficiency and productivity of the banking system. However, it is important to bear in mind that the banking system in Iran is still under control of the government. Therefore, it is important to examin the nature of governance in the privatization process. Generally speaking, privatization of enterprises should take place through the public offering. But when there is no purchase after two auctions, privatization is permitted through negotiation and after the board approvals.lack of capacity of the non-government sector is the main reason for the privatization process of the banks that happens through any other ways rather than public offering. But, in such an economy where its main part is dominated by the public sector, how small private sector can take control of the large public sector? The challenges experienced in the first wave of privatization showed that failure to use proper privatization methods can have a devastating effect on the future of the banking industry. Therefore, choosing the right method for privatization is very important. In our country, the privatization of banks not only has not reduced the economic problems, but also has increased the problems of the banking industry and the national economy. Therefore, we need to use this experience and apply alternative ways to reconsider the privatization process and empower the private sector in a way that it becomes the dominant part of the banking industry.

Conclusions & Suggestions:

Privatization takes place through transfer of ownership and management Due to the lack of sufficient liquidity for the buyers in the country, the first method was not successful.  In this regard, the transfer committee has decided to privatize the banks in the first wave of privatization through non-public offering. However, it has not achieved the goals of privatization. On the other hand, regarding different challenges of the Iranian bankning privatization we can considere changing of methdoes and approaches at this field in both regulatory system and the banking actors. For the last one, it could happen by downsizing of banks through the transfer of assets and subsidiaries, as well as the use of bank management transfer methods to empower the private sector for buying. bank shares.