The Iranian banking system has loans worth $38 billion, almost twice its amount of capital, in arrears, a senior official said in remarks published on Saturday, describing it as a 'serious problem'.

Mostafa Pourmohammadi, head of the National Inspectorate Organization, blamed 'defective' legislation as well as 'lack of adequate attention' by the banks themselves for the situation.

In comments carried by the Hayat-e No daily as well as other Iranian media, he did not single out any individual banks.

Most banks in Iran, the world's fifth-largest crude exporter, are state-owned, even though it has started to privatise some of them.

Iranian state banks are often tasked by the government to give low-interest loans to companies and other sectors to help boost economic development. 'There are more than 38 trillion tomans (about $38 billion) in debt arrears to the country's banking system when its current capital stands at less than 20 trillion tomans,' Pourmohammadi, a former interior minister, said.

'This is regarded as a serious problem which the National Inspectorate Organization has begun to deal with and has reported that to the relevant officials,' he said.

He said his organisation had put forward proposals on how to deal with the situation, without giving details, and urged parliament to help find a solution. 'Some of the duties the government entrusts the banking system are beyond its capacity,' Pourmohammadi said.

'(The problem) also stems from the lack of adequate attention by the banks in this connection and we regard the banks as responsible and we call on them to act more seriously towards their arrears,' he added.

Like other major oil producers, Iran reaped windfall revenue when crude prices were soaring to hit almost $150 per barrel in mid-2008, but the price has since declined to about $70 now.

President Mahmoud Ahmadinejad, re-elected in a disputed June poll, was often criticised during his first four-year term of profligate spending of petrodollars and for his policies of keeping interest rates below the level of inflation.-Reuters