Secretary of Iran's Private Banks and Credit Institutions Association says the current lending rates are too low, stressing that deposit rates must be at least 3% higher than the inflation rate.
"Banks pay 18% on deposits and are obliged to loan 80% of the deposits at 18%...Banks are not charities they [also] have to make profit and take care of their expenses," Mohammad Reza Jamshidi was quoted as saying by ILNA.
The senior banker stressed that private banks have made no proposal for increasing interest rates. Jamshidi added that the current conditions have prompted many to borrow from banks and invest the money into other markets.
"Considering the high and rising inflation it would not be wise to set rates higher than inflation. Having said this, interest rates need to be attractive enough for both lenders and depositors."
The overall goods and services CPI in the 12-month period ending Nov. 21 jumped 44.4% compared with the corresponding period the year before.
Talks are underway for a possible increase in deposit rates, even though no official has confirmed any plan to this end. CEOs of private banks had agreed earlier to comply with the approved rates.
The CBI last week instructed banks and credit institutions to observe regulations and avoid offering higher rates on deposits.
Last year the Money and Credit Council allowed lenders to raise interest on term deposits, apparently to curb the scale and scope of money flooding into selected financial markets and avoid further depreciation of the national currency.
Iran’s top monetary decision-making body decided to raise interest on one-year maturity deposits by 1 percentage point to 16%. Likewise, the rate for two-year deposits was set at 18%. For short-term deposits with 3-month maturity it increased by 2 percentage points to 12%. The MCC approved 14% interest for six-month deposits, up 3 percentage points.
Low interest rates have long undermined the people’s enthusiasm to park their money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings.
Last week in a meeting with CEOs of state-owned banks the Economy Minister Ehsan Khandouzi instructed lenders not to arbitrarily raise lending rates. “Lenders are obliged to refund the interest charged over and above rates decided by the MCC,” he was quoted as saying
The maximum rate on bank loans is 18%. However, reports have it that many banks demand higher rates. This is while businesses are unable and unwilling to paying the official 18% in light of the dire economic conditions, plunging sales and bulging inventories.
Banks and credit institutions gave 4976.9 trillion rials ($20.2 billion) in loans to businesses in the first three months of the current fiscal year that ends in March.
This was 2,071.7 trillion rials ($8.4b) or 71.3% higher on the same period last year, according to CBI data.
The ratio of non-performing loans to total loans was 8.5% by the end of the third quarter of the last fiscal year.
Data published by the Economy Ministry news portal, shada.ir, show loan-to-deposit ratio (LDR) of specialized banks owned by the government was the highest and private banks underperformed in giving loans and credit.
LDRs are used to assess a bank's liquidity by comparing total loans to total deposits for a specific period and is expressed in percentage.
High LDRs mean that the bank may not have enough liquidity to cover unforeseen fund requirements. Conversely, if the ratio is too low, the bank may not be earning as much as it should be.
Accordingly, the ratio of specialized state banks was 126% on average until July 22. Semi-private commercial banks followed at 86% while the LDR of state-run commercial banks was 79%.
Average LDR of fully private banks and credit institutions was 63% -- almost half that of specialized government-owned financial instructions.
