Chief executives of banks have reached an agreement to use two rates for returns on deposits, a fixed 15% on deposits made by legal entities and a floating interest rate on accounts of individuals. The Central Bank of Iran, however, insists that there is no plan for a change in deposit rates for now.
The bankers’ controversial decision, reached during a meeting with the CBI governor, quickly became viral on social media after it was publicized by an unnamed private bank last week.
However, the CBI’s public relations department denied any plans for implementing such measures saying that the so called “decision” was merely a proposal tabled by the senior bankers.
But the Persian-language newspaper Donya-e-Eqtesad enquiries show that the proposed changes to deposit rates are likely to be implemented. A number of bank CEOs confirmed to the newspaper that banks have agreed and have submitted their proposals to the CBI.
As per the regulations, any change in interest rates by banks should first be approved by the CBI boss. A review of past measures indicates that banks play a significant role in the process of changing interest rates.
Banks are allowed to offer 15% return on one-year deposits. The CBI has set the cap for return on short-term and sight deposits at 10%. However, lenders are allowed to offer higher returns on deposits if they manage to earn higher profits in their annual balance sheets.
Some banks have been allowed to offer 20% return to attract liquidity into the market, mostly in line with CBI measures to control forex rates fluctuations by decreasing the demand side.
Banks’ Interest
Iran’s banking system has usually offered a single interest on time accounts. Bankers’ decision to restrict deposit rates for legal entities would help them reduce their costs.
Considering the state of the economy caused by the coronavirus and its anticipated impact on businesses in coming months, lenders prefer to curb the pressure of paying interests on time accounts.
They say that lower rates will not result in migration of financial resources from banks, but would increase the volume of current accounts which are significantly cheaper for the banks.
Central bank data show long-term deposits accounted for 80% of the total amount. Long term deposits reached 2,236 trillion rials by the end of the ninth month of the previous fiscal year.
