Despite the Central Bank of Iran warning banks against interest rates higher than those set by the regulator, banks and credit institutions are oblivious to its entreaties and continue offering rates as high as 23%.
One state-owned bank offers 20% on deposits over 500 million rials (around $1,380) on the condition that the money is not withdrawn before three months. This unnamed bank offers 19% if the money is not withdrawn before one month, the Persian-language news website eghtesadnews.com reported.
The same is true for private banks, with the exception that rates increase along with the amounts deposited. Most private banks offer 20% to 21% on deposits of between 1 billion rials ($2,720) to 2 billion rials ($5,442).
When the deposits enter into trillion rials interest rates climb in tandem.
This is while last year the Money and Credit Council (MCC) set rates at 12% for 3-month deposits, 14% for 6-months, 16% for one-year and 18% for two-years. Most banks were in breach from the outset granting over and above 18% for one-year deposits.
In the past few months cutthroat rivalry has been reported among lenders trying to lure big money by offering higher interest along with other perks.
The CBI apparently has not been indifferent to such harmful banking practices. In late September it sent the case of one (unnamed) bank to the judicial authority for offering illegal interest rates despite repeated warnings. Five other banks and credit institutions were also found in breach.
Abouzar Soroush, CBI’s deputy for supervisory affairs said the regulator had given all banks until Sept. 22 to redo deposit rates and play by the rules.
“We warned them that CBI rules must be upheld and reminded them of the central bank rates plus the fact that bank CEO’s and board members are responsible for ensuring that these rates apply. We also met the officials of banks and credit institutions face to face.”
Pushing the MCC
Soroush said that in the past few months some banks had asked the Money and Credit Council (MCC) to increase interest rates on deposits but their request was rejected and “rates are not going to go up any time soon.”
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 was increased by 2 percentage points to 12%. The top banking body approved 14% for six-month deposits, up 3 percentage points.
Vice CBI governor Asghar Abolhassani said recently that by paying high interest banks increase their own costs.
“These harmful practices damage the economy and businesses, increase the cost of money, violate the rights of the people, undermine the viability of lenders along with the financial viability of banks.”
