Economy, Business And Markets

Credit Institutions Warned Against Disrupting Markets

Credit Institutions Warned Against Disrupting Markets Credit Institutions Warned Against Disrupting Markets

A senior monetary official on Monday warned credit institutions against disrupting the currency market.

Over past years, certain credit institutions have interfered in currency, gold, and real estate markets, causing thousands of individuals or companies to suffer huge losses, said Hamid Tehranfar, deputy governor of the Central Bank of Iran for supervision affairs. "In other words, the profits they have made over these years have cost many others losses."

As their activities have brought about serious crises so far, only those institutions which are authorized and ready to respect CBI regulations can operate in the money market, he said, as reported by ISNA.

Tehranfar warned that the names of the banks and credit institutions violating CBI regulations will be made public if they continue the wrongdoings.

However, the official did not elaborate on how the entities disrupted the markets.

There are 7,000 credit institutions currently operating across the country. According to Tehranfar, 5,000 or so are usury-free Islamic institutions and about 1800 are industrial/labor cooperatives.

There also exist 60 other credit institutions that are illegally operating and must either be shut down or merged with banks or credit institutions, he said.

The list of credit institutions operating with the permission and under the supervision of the CBI is publicly available on the central bank's official website. The institutions that are in the process of obtaining legal permits are also included in the list.

The activities of institutions not listed are illegal, Tehranfar announced, warning that the CBI has given them a last chance. "If any other cases of violations are reported, strict measures shall be taken against them."

During the previous administration, money supply surged as oil revenues spilt into the economy. In turn credit institutions mushroomed. But, there was no serious will to organize them.

The CBI recently decided to merge them. The decision would help officials to more easily monitor and supervise the institutions. It could also help them achieve economies of scale, increasing their financial stablity.

Police and the judiciary system are also cooperating with the CBI to find solution to the problem and identify the wrong doers.

The CBI has urged all commercial banks to refrain from presenting services to the credit institutions which do not have working permits. "Any violations of this issue on behalf of the banks will not go unnoticed," Tehranfar warned.

Deposit Rates

Although commercial banks have agreed to uphold CBI regulations on interest rates, some credit institutions continue to offer higher rates than the 22 percent ceiling, as agreed, to attract deposits and cover the critical conditions of their liquidity.   

By offering high deposit rates the credit institutions must take on high-risk activities to be able to pay back the interests. They do not uphold banking regulations and continue to operate despite their shaky foundations. This creates several problems within the banking system and for the officials struggling to control the money market, Tehranfar argued.

The CBI has so far carried out extensive negotiations with credit institutions to find a solution, but they continue to offer high deposit rates to solve their liquidity issues.