Despite higher bank fees the banking sector is expected to decline 0.3% in the current fiscal year that ends in March, estimations by the Majlis Research Center show.
In a report covering key economic sectors, the MRC said hyperinflation has undermined growth of the "financial intermediary" sector in spite of rise in income from bank charges and relatively higher earnings from interest on loans.
Citing data from the Statistical Center of Iran, the influential parliamentary think tank said the sector grew by 10% during the first quarter of the current fiscal year (March 20-June 1).
Interest on loans is considered the main income source of Iranian banks. MRC pointed to descending order of loans against deposits in the past two years as the primary reason behind the sluggish banking sector that has come under increasing censure from businesses and economic experts.
However, increase in loan-to-deposit ratio (LDR) in recent months plus the decision by the Central Bank of Iran to scrap overnight interest was seen as a glimmer of hope for the struggling banking industry. Increase in bank fees added to that cautious optimism.
The research wing of the Majlis said the "added value of banks" is simply not enough to make up for the unprecedented consumer inflation and price rises that have become a serious source of concern for the majority of the population.
CBI data show that LDR increased slightly at the end of the sixth calendar month to Sept. 21 posting two straight growth periods after extended declines.
LDR was 78.5% in the reviewed month up 0.8 percentage points compared to the preceding month and 2 percentage points higher than two months earlier.
In comparison to the end of last fiscal year, however, LDR was down 0.9%, indicating 1.3% decline on an annualized basis.
LDR started declining from the beginning of fiscal 2018-19, dropping 7.2 percentage points from 85.7% then. The fact that the ratio improved in two months indicates banks are more inclined to lend.
Total outstanding loans rose 5,928.6 trillion rials ($21.9 billion) during a course of year ending Sept. 21 to reach 22,753.2 trillion rials ($89.98b), up 35.2%. Total loans registered 17.6% increase during the first half of current fiscal year to Sept. 21.
Customers held 31,954.4 trillion rials ($122.9b) in deposits with banks and credit institutions. This was up 36% compared to the same period last year when deposits reached 23,493.93 trillion rials ($94.63b). Deposits rose 17.6% compared to the end of the last fiscal year to 27,162.84 trillion rials ($104.47b).
Higher Bank Charges
The CBI put into effect new rules for higher bank charges but also allowed lenders to offer up to 30% discount on fees to help promote competition between banks. Fees charged by banks were unchanged in the past three years.
At present, banks receiving and making payments bear the bulk of payment fees because when a payment is made with a bank card, the bank receiving the payment has to pay a fee to the bank whose card has been used. This is on top of the amount banks pay as rent and support fees for each POS device to payment service providers.
Despite calls to increase deposit rates to partially bridge the gap between punishing inflation and the tanking national currency, the CBI refused claiming that the decision may negatively impact the stock market and further harm manufacturers.
Low interest rates have reduced the people’s enthusiasm to park their devalued rials in banks as galloping inflation eats away at their rainy-day savings.
