Interest rates for interbank lending dropped 3.9% in the last fiscal year (March 2019-20) compared to the year before, according to Central Bank of Iran data.
The lending rate dropped from an average 19.72% in fiscal 2018-19 to an average 18.95% in the previous year with rates ranging from 16%-23%.
A look at interbank deals in the past fiscal year shows that lending rates were of the descending order. Rates were as high as 19.81% during the first month of last year (March-April 2019) to 18.34% at the last month (ending March 19).
Interbank rate is the rate of interest charged on short-term loans between lenders. Such loans mature in one week or less, the majority being overnight.
Iran’s interbank market showed a slight decline in volume but a substantial increase in the value of deals last year.
The total value of interbank market transactions reached 186,888 trillion rials ($1.13 trillion) in the last fiscal year, up above 107,149 trillion rials ($650 billion) a year earlier to register 74.41% growth in of one year.
In volume terms, a total of 40,341 deals were conducted, down from 40,663 in the year before to make a subtle 0.8% drop.
Lending rates were of the descending order in the past fiscal year. Rates were as high as 19.81% during the first month of last year (March-April 2019) to 18.34% at the last month (ending March 19).
As per the CBI report, banks and credit institutions conducted deals worth 646 trillion rials on a daily basis during the 289 business days.
Data show that over the past year state-owned banks lent 53,958 trillion rials ($327 billion) to other lenders, accounting for 28.87% of the total. State lenders gave 43.2% of the loans a year earlier.
Privatized banks lent 95,533 trillion rials ($578 billion) in the interbank market, representing 51.1% of the total. Private banks and credit institutions respectively lent 34,726 trillion rials and ($210 billion) and 2,669 trillion rials ($16 billion).
Privatized banks include lenders whose shares have been divested, in whole or in part, as per the provisions of Article 44 of the Constitution.
In other words, they differ from private banks in that they were originally founded and owned by the government. Bank Saderat Iran, Tejarat Bank and Bank Mellat are the three privatized banks.
Monetary Policy
Iran’s government has stepped up efforts in recent months to boost financial discipline of banks and credit institutions by announcing revised monetary policies.
Central bank governor Abdolnasser Hemmati said recently that banks have significantly cut borrowing from the CBI and turned to interbank sources market to meet their funding needs.
As a key step toward regulating the interbank market and reducing lenders’ dependence on the CBI, the regulator launched an open market operation in January.
OMO is in line with the CBI policy to reduce banks’ dependence on the central bank and help curb inflation by regulating rates in the huge interbank market. It also enables lenders to better manage their liquidity needs and offer surplus liquidity on the interbank market.
Within this framework central banks buy and sell securities in the open market to expand or reduce money supply. Central banks can buy government bonds to increase the money base (cash reserves), and by extension, curb inter-banking lending rates. By the same token, selling government bonds reduces the base money and raises interbank rates.
Iran’s interbank market was established in July 2008 with the aim of strengthening the management of liquidity held by banks, facilitating short-term lending among banks, maintaining monetary discipline and facilitating implementation of monetary policies announced by the regulator.
The Central Bank of Iran is in charge of organizing and supervising the market and when necessary intervenes to maintain optimal interbank borrowing rates.
