The governor of Central Bank of Iran says the CBI has so far allocated $38 billion in foreign currency for imports. Out of this amount, $9.3 billion was allocated via Nima (the integrated forex deal system) and $24 billion was injected directly into the banking system.
Abdolnaser Hammati said close to €11.5 billion was traded on Nima – forex generated from non-oil export earnings.
In addition, €7.4 billion was sold [to importers] via Nima, €8 billion was offered and equivalent of €600 million was used for imports in exchange for exports for the same amount. Close to 65% of the total €40 billion in non-oil export revenues have not been repatriated to the country.
The CBI chief again complained about the exporters’ reluctance to repatriate their export currency earnings to the economic cycle of the country, saying that if they do so the CBI will no longer need to allocate its own foreign currency for trade.
Regarding foreign exchange rates, Hemmati argued that current forex rates in the open market will certainly decline because imports at such (high) rates simply will not make economically sense for traders.
He ascribed the recent hikes in forex rates to negative reports about the possibility of the Expediency Council rejecting the Financial Action Task Force-related bills. The council is in charge of resolving disputes between the Guardians Council and Majlis.
He referred to the regulated forex market and said the infrastructure for launching the market is in place. “The regulated market will very likely be launched in two weeks. However, we prefer this happens in the beginning of the next fiscal year [starts on March 21].”
The latest measure is seen as yet another attempt to create and organize a transparent market where foreign currency will be traded in cash via an electronic platform.
Currency Reserves
Hemmati tried to reassure people that country is not facing any serious challenge with regard to foreign exchange earnings. He spoke about 1.7% growth in the currency reserve during six months since last September, emphasizing that there is adequate reserve of bank notes.
“The trade balance is currently positive and the CBI is endeavoring to also render the foreign exchange balance positive.”
The governor says the regulator is seeking to overhaul the banking system and merge five banks owned by the armed forces plus and credit institutions with Bank Sepah.
The rare merger would take about four months, he said, adding that about 24 million depositors have 2,150 trillion ($16.5 billion) in deposits with the five banks. “The merging banks will pay the interest to depositors as per their contracts,” he said in an interview with state TV. In addition, the merging lenders have given 1,300 trillion rials ($10 billion) in loans.
The merger was approved by both the Money and Credit Council - a major monetary decision making body - and the Supreme Council of Economic Coordination - a body comprising heads of three branches of the government. “The merger has approval of the highest authority in the country,” Hemmati said, alluding to the Leader Ayatollah Seyyed Ali Khamenei.
On the fate of shareholders of the merging banks, he said four months will be given to lenders to hold extraordinary shareholder meetings and decide what they want to do.
Additionally, in coordination with Securities and Exchange Organization, the symbol ticker of the said banks will re-open in the stock market in a month and the merging body can purchase the shares of shareholders at nominal prices or at prices quoted at the time symbols were frozen - whichever is higher.
“If shareholders believe that the price of his shares is higher, they can wait for four months [and allow the merging process to finish]. For the time being they can sell their shares at nominal prices,” he said.
He touched on banking services after the merger, saying that Bank Sepah will decide about new banking services and armed forces personnel will have priority in receiving services.
Merging banks have a total of 2,500 branches which will be added to the existing 1,600 Bank Sepah’s branches. The figure is significant in that the number of braches after the merger will be 1,000 over and above that of Bank Melli Iran, Iran’s largest lender.
He assured depositors and staff of the merging banks that the CBI wants to retain the staff and continue offering services to depositors.
Supervision
Oversight of banks should be within information technology frameworks, he stressed, adding that the banking system is not yet capable of using online supervision.
“The time lag between whatever occurs in banks and the time when the CBI realizes what has indeed happened is not acceptable,” he told prime time TV.
He admitted that some oversight shortcomings are rooted in management problems and warned that when it comes to supervision, especially in dealing with capital inadequacy and imbalances, the CBI will be authoritative. “Efficient oversight is crucial for implementing open market operations, he said.
He pointed to OMO as a monetary policy that is being initiated by the CBI to enable the regulator to trade government bonds [in the interbank market] to be able to regulate interest rates and curb inflation.
OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce money supply. Within OMO, the CBI buys government bonds to increase the money base (cash reserves), thereby reducing inter-banking lending rates.
On the other hand, selling government bonds decreases the base money and raises interbank rates.
Hemmati called for structural reforms in preparing the national budget and curbing the overreliance on oil export. In next year’s budget bill (March 2019-20), the projected spending figures are bigger than revenues, which means deficit. Hence, the deficit holes must be plugged either by issuing government bonds or borrowing from CBI, he said, stressing that borrowing from the CBI would be the last resort.
Despite the US attempts to undermine the monetary market in Iran, the market is relatively stable, the CBI boss said. He warned wrongdoers and disruptors and said the CBI is now fully authorized, able and willing to do all that is necessary to “regulate the money market.”
