Banks' Coordination Council and the Association of Private Banks and Credit Institutions issued a joint statement on Thursday stating that they will abide by the Central Bank of Iran's rules on interest rates.
Bank CEOs met with senior CBI officials Thursday and pledged that “no bank would offer higher rates from Saturday”, the CBI website reported.
The belated agreement comes after the CBI warned lenders to play by the rules on interest rates or face prosecution. In a notice seen on the CBI website, the regulator said Wednesday that despite earlier warnings its investigations found that some banks resort to dubious ways to attract big money by offering higher rates on deposits and outdo other lenders.
The central bank also said that it would look deeper into the operations of bank branches. Some state-owned lenders are offering higher rates even though the CBI has not publicly approved the increase, media reports said Monday.
A report by EcoIran Web TV said some banks have raised interest up to 25% and charging between 24%-25% on loans from 18% last week.
Addressing banks, the regulator said such “detrimental practices (higher rates) harm the national economy and business borrows, increase the cost of money, violate the rights of beneficiaries and undermine the financial stability of banks.”
The CBI warned that banks found in breach will see their branches shut, codes deactivated and restrictions on their physical expansion, balance sheets, credit and permission to offer forex services.
It called on the senior bankers to “sack branch managers not playing by the rules before the regulator steps in”.
The Money and Credit Council (MCC), the top decision-making body of financial and monetary markets is expected to endorse the higher interest rates.
Former CBI chief Ali Salehabadi in the final days of his office late last month had spoken about the possibility of revising rates upwards to control skyrocketing inflation and lift the rapidly falling national currency.
The new CBI boss, Mohammad Reza Farzin, has made known that he supports the decision to raise deposit rates. The CBI recently allowed banks to raise rates on certificates of deposit (CDs) up to 23%.
CDs provide a fixed interest rate in exchange for the customer agreeing to keep a lump sum untouched for a fixed period. Usually the time limit is one year but if money is withdrawn sooner than agreed interest is cut as a penalty.
Media outlets interpreted the CBI move on CDs as opening the way for the much-debated higher rates. EcoIran Web TV quoted an informed source as saying earlier that the regulator had decided to increase interest on deposits by 5%.
However, banks in the obvious hunt for big money have now gone further raising the rates by 7%.
In mid-2020 the MCC increased interest rates on one-year maturity deposits by 1 percentage point to 16%, on two-year deposits the rate was set at 18%. For short-term deposits with 3-month maturity it was hiked by 2 percentage points to 12%.
