President Ebrahim Raisi has instructed the Central Bank of Iran and commercial lenders to concentrate on streamlining regulations, improve lending and financial discipline, facilitate interaction with other countries and enhance the safety of investments.
Speaking at the annual CBI board meeting on Sunday, Raisi referred to bank overdraft as a key constraint hampering the banking sector and called on the regulator to take the necessary measures, President.ir reported.
He said the CBI should enhance supervision of bank financial statements and the functioning of private lenders to direct funds towards the cash-strapped production units.
"Efforts of the central bank and other economic entities must be anchored toward economic stability, lowering investment risks and supporting production and creating jobs.”
"These [goals] cannot be achieved by issuing decrees. The people and businesses must see results in practical terms," he noted.
Moving away from the US dollar, easing public access to loans, controlling inflation and the money suppy, and enhancing forex reserves were among issues the president discussed with CBI managers.
Performance Report
CBI Governor Ali Salehabadi presented a report on the bank's performance with updates on key economic and financial indices.
He referred to stability of supply to the currency market this year. "Supplying foreign currency via the Nima market has increased by 30% to $42 billion since the beginning of the current fiscal year in March 2022," he told the meeting.
Nima is an online platform affiliated to the CBI through which exporters sell their overseas currency and companies buy it for importing goods, machinery, equipment and raw material.
In this system, importers declare their currency needs, exporters register their proceeds and banks and authorized moneychangers are brokers.
"We saw a significant increase in repatriation of export income last year -- from $7 billion in 2020-21 to $21 billion in 2021-22.”
Salehabadi referred to new measures to address demand for foreign currency. "Requests for foreign currency to import medicine and medical equipment are processed in 48 hours…Allowing exporters to change their forex revenue at negotiated rates was important in addressing forex demand."
The senior banker added that bank landing to businesses posted 54% increase in the fiscal year to March compared to the previous year while loan growth was in the region of 45% in the first seven months of the year.
According to Salehabadi, the growth in money supply declined by 4 percentage points to Sep 22, from 39% to 35%.
In line with measures to improve financial discipline to the key banking sector, the CBI has announced stringent rules and restrictions on dysfunctional banks.
Economists and experts blame the explosion in money supply on the deep economic ills that compel government(s) to meet part of the budgetary needs by borrowing from the CBI.
Banks have been warned to be mindful of their books and avoid operations that lead to shortage of liquidity. They cannot seek funding from the CBI unless they put up “strong collateral” namely gold, bonds and currency.
The CBI says it has controlled the excessive bank borrowing from the regulator in the past two years partly via open market operations (OMOs).
OMOs are essentially implemented to control the monetary base and interbank rates. Using bonds as collateral to borrow from the CBI is an integral component of this monetary policy.
Issuance of Productive Credit Certificate, known by its Persian acronym Gam, increased by four times to 320 trillion rials ($901.4 million) in the current fiscal year, the banker said.
Gam is a market-oriented financial instrument that can be traded in the money and capital markets. Lenders assist credible businesses by offering tradable credit certificates similar to LCs. The certificate can be given to suppliers of raw materials, machinery and equipment.
Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market but money is not exchanged between the beneficiaries.
Gam is one of the integral components of the government’s policy to implement supply chain finance (SCF). The CBI recently revised the relevant guidelines to make the best use of Gam within the SCF framework.
