Iranian banks should get ready to play a more effective and efficient role in the economy in the coming months when the international sanctions are eased, Valiollah Seif, governor of the Central Bank of Iran said on Sunday.
Addressing a meeting of bank CEOs and CBI officials, he recommended Iranian lenders to improve their standards to be able to meet the challenges of the highly competitive international banking industry, the CBI website reported.
Seif referred to the problem of non-performing loans aka stressed assets as one of the banks' dark spots and called on lenders to resolve the issue.
NPLs account for a massive 12.8% of the loans and lenders should manage their assets with more prudence "while trying to reduce the bad loans," Seif said.
Seif last week pointed to the July nuclear deal between Iran and six world powers, stressing its expected positive impact on the flagging economy. "Iran's banking relations with the outside world will soon return to normalcy after the lifting of sanctions".
Seif's latest comments come as the CBI steps up its efforts to reconnect to SWIFT inter-bank messaging service by negotiating banking collaboration with several countries in recent weeks.
The senior banker also took stock of bank overdrafts saying that CBI has taken steps to control the volume of lenders' overdraft. He said by managing overdrafts, banks can avoid hefty overdraft fees. "This in turn will help lenders save money and augment their lending power."
The volume of bank loans up until the second quarter of the Iranian fiscal year (ended November 22) increased by 6.3%. Seif said 63.3% of the loans granted to businesses were for improving their working capital.
In the industries and mines sector, the figure for business loans was 82.6%.
He advised banks to lend for "short-term schemes and small business" and leave long-term financing to the capital market.
Forex Market
Seif pointed to volatility that has rocked the forex market saying that US dollar has so far gained 8.2% against the rial in the current year (ends March 20).
However, he dismissed claims that the CBI can or intends to manipulate forex rates saying that the rates are "the function of the market mechanisms." He added that the regulating body's job is to "manage sudden shocks to the market" and that his bank "has been successful in fulfilling this task."
Interest Rates
Interest rates should be cut further as a logical consequence of declining inflation according to CBI governor.
"We should aim for rates close to the 14% inflation rate. To achieve a natural and gradual reduction in rates, we have been able to lower inter-bank lending rates from 29% to 20% which can be a good move for further rate cuts."
He censured some lenders for what he called an "unhealthy competition" in offering higher deposit rates and increasing the number of their branches in most major cities. He called on banks to uphold the rules and improve the quality of their services."Higher deposits and more branches do not necessarily translate into more profit for banks."
Seif reiterated the unending problem of uncertified lenders saying that his bank and other supervisory state organizations are hard at work to tackle the issue that has long emerged as a major challenge to the national economy.
He emphasized the importance of protecting the peoples' savings and deposits in the said institutions saying that the CBI is wary of measures that could "jeopardize people's savings in these places."
