Central bank officials have expressed concern over the recent acceleration of commercial banks lending, saying it might lead to higher inflation. Economic experts, however, believe that the opposite might be true.
In the past two years, commercial banks have been highly criticized on the part of economic authorities for being engaged in speculative activities. The criticisms seem to have their roots in the fact that by allocating their resources to the enterprises they run, banks refused to pay loans to manufacturers. However, the latest statistics released by the Central Bank of Iran indicate a change in commercial banks attitude.
The CBI data show that in the 10-months ending January 20, commercial banks loaned out over 2,700 trillion rials ($77 billion), showing 320 trillion rials ($9 million) growth in a single month, compared to the end of the third quarter, when it stood at 2,380 trillion rials ($68 billion), according to Persian economic daily Forsat Emrooz.
The amount of the loans account for nearly 95 percent of the 2,850 trillion rials ($81 billion) promised earlier by the CBI governor, Valiollah Seif, for the current fiscal year, ending March20.
The deputy governor, Akbar Komijani, had in his recent remarks warned that banks are utilizing their entire resources to give out loans. “This might entail inflationary consequences,” he said.
Central bank officials are apparently worried that commercial banks’ enthusiasm for lending, which is often beyond their lending power, might lead them to borrow from the CBI, which in fact, in some cases “has been the case,” the newspaper said.
Fruitful
Economic experts, on the contrary, believe that amplified lending will help spur production.
Two economic experts interviewed by Forsat Emrooz provided arguments to support this claim.
“Unfortunately, the CBI has adopted contradictory policies towards commercial banks,” Sirous Karami said. “On the one hand it (CBI) has allowed them to hold a smaller share of their assets as reserves to free up more money for lending, but on the other it condemns them when they do so,” he added.
This is an indication of the fact that the bank adopts its policies “haphazardly” and for the short-run, without having any integrated long-term plan for the banking system, he said.
The expert noted that loans are not capable of giving rise to inflation per se, while the “target group” to whom loans are paid does matter. “If loan facilities are granted to the sectors outlined in the law, no adverse inflationary effects will arise.”
Identifying loan interest rates as another important factor, he said the current 22-28 percent rate of loans paid to manufacturing unites are “unjustly high.”
“Only loss-making manufacturers dare to get them,” he added.
During 1995-2001, the interest rate of the loans paid to industries was between 17-19 percent. It later decreased to 12-16 percent for the period between 2002 and 2011.
Mohammad Ayoubi, another expert, criticized the central bank for authorizing the banking system, via its approved policies, to collect market liquidity in banks and curb inflation.
“Inflation cannot be controlled forever by blocking cash flows in banks,” he noted. “Sooner or later, public savings need to be injected to business activities.”
