The Central Bank of Iran has increased the reserve requirement of nine banks with weak finances, head of the CBI Department for Health Assessment said.
“Six banks saw their legal reserve raised last month,” Aliakbar Miremadi was quoted as saying by IBENA. He did not name the lenders nor provide details on their poor performance.
“Higher legal reserves are punitive measures imposed by the CBI on unhealthy banks,” Miremadi said, reiterating that the regulator has increased oversight of lenders and tightened rules by which banks abide.
Reserve requirement guarantees peoples’ savings and serves as a tool for controlling money circulation, inflation and money supply. The CBI determines the reserve requirement ratio of banks.
In late July, the Money and Credit Council, the top monetary and banking decision-making body, allowed the CBI to increase bank reserve requirements up to 15% from the maximum 13% in the past.
The ratio now ranges from a minimum 10% to max 15% and the regulator can cut the reserve for disciplined banks to as low as 10%. Above this, dysfunctional banks must place 15% of their resources with the CBI as legal reserve.
The regulator says such measures help control issuance of money by dysfunctional banks and their dubious lending practices in line with broader goal of controlling inflation.
Earlier in the week, the CBI said it is exercising stricter control on bank balance sheets and plans to appraise their performance as per acceptable “health indices” at six-month intervals.
As per CBI rules governing banks, commercial lenders are allowed to raise their “assets” by no more than 24% in one year.
The percentage is higher for specialized and development banks, mostly owned by the government, as they can expand their books by 30% pa.
Earlier, the Economy Ministry said creation of money has been curbed in recent months as banks and credit institutions had reduced lending.
The ministry said outstanding loans increased by 3.6% in the first quarter of current fiscal year (ended June 21). The growth is meaningfully lower from the 13.6% rise in the corresponding period last year.
