The Central Bank of Iran says six (unnamed) banks will face punitive action for offering higher interest rates on deposits.
“Banks were given two weeks to stop proposing illegal interest rates. The dossier on one bank is finalized and five others have also been found in breach of CBI regulations. These banks arbitrarily increased interest rates on major deposits and saving accounts,” Abouzar Soroush, the CBI deputy for supervisory affairs, was quoted by ebinews.com as saying.
Early this month the regulator warned all lenders to play by the rules following persistent reports that some were offering more than 20% interest on deposits to attract big money. Using assorted pretexts banks have cajoled the CBI to raise the rates to entice major depositors.
“We had given all banks and credit institutions until Sept. 22 to rectify their deposit rates and lower them in line with the approved ceilings. We warned that CBI requirements must be upheld and reminded them of the rates approved by the Money and Credit Council [MCC]," Soroush said.
Noting that bank CEOs and board members are and must be responsible to ensure that the rates are upheld, he said, "We held face-to-face meetings with senior bankers” to convey the message in unambiguous terms.
Soroush said the regulator’s own investigations and reports received by it reveal that six banks and credit institutions have been in oblivion and as a result their board members will be summoned by the CBI’s law enforcement board.
As is often the case, he did not name the banks.
Unwanted Practices
High rates on deposits, he added, have detrimental effects on the nation economy and financial structure. Such unwanted practices, he stressed, increase the cost of money, violate the rights of beneficiaries and put lenders themselves at risk, and possible insolvency.
However, it merits mention that low interest rates have undermined people’s enthusiasm to park money in banks as the national currency tanks and runaway inflation eats away at their hard-earned savings.
In mid-2020, the MCC, slightly increased one-year maturity deposits by 1 percentage point to 16%. Interest on two-year deposits was set at 18%. On short-term deposits with 3-month maturity, the rate increased by 2 percentage points to 12%. The main banking policymaker approved 14% for six-month deposits, up 3 percentage points.
In early August, Ali Salehabadi, the CBI boss said the monetary regulator may consider the possibility of higher rates on deposits.
However, Mohammad Reza Farzin, the CEO of Bank Melli Iran, later told the Persian-language newspaper Donya-e-Eqtesad that the MCC was considering higher rates.
“However, according to reports I received, many of its members were not in favor and ultimately voted against it.”
While the CBI has long insisted that high rates increase the cost of money for banks, there are valid concerns that low rates push savers to close their accounts and look for other safe havens to protect the value of the rapidly diminishing rial.
