A Abanking executive had called for further cut in reserve requirement ratio, saying the current rate pushes banks to deposit a large amount of their capital in the central bank, a move that would decrease their lending power.
Hassan Motamedi, CEO of privately-owned Eghtesad Novin Bank (EN), also criticized the interest rate (34 percent) banks need to pay when they borrow from the central bank.
In April, Money and Credit Council approved to cut the reserve requirement ratio by 0.5 percent to 13 percent for commercial banks and credit institutions (both private and state-owned). The council rate, however, remained unchanged at 10 percent for specialized banks and those branches of commercial banks located in free trade zones. The figure also remained unchanged for Bank Maskan, largely involved in the housing sector.
Given MCC’s recent decision to cut the deposit rate ceiling to 20 percent and the lending rate to 24 percent “other rates including the reserve requirement rate should be cut further to help restore banks’ lending power,” Financial Tribune’s sister news website Eghtesad News quoted Motamedi as saying on Saturday.
The banker regarded non-performing loans or NPLs as the bane of the Iranian banking system. “Since demand has unprecedentedly exceeded supply and banks have difficulty giving loans, they would be inevitable to go cahoots in setting deposit rates to raise their fund by attracting more deposit,” Motamedi said.
He rejected claims that banks have created a “monopoly” on liquidity, explaining that due to economic recession and high volume of toxic loans, banks do not have adequate resources to fulfill the rising demand. “As soon as the NPLs problem is tackled, the money market would move toward equilibrium and increase competitiveness,” he noted.
At present, he said, the central bank can help banks by reducing reserve requirement ratio so that commercial banks can more appropriately finance development projects.
Central bank officials argue that every one percent decrease in the reserve requirement ratio would lead to a 4.5% increase in money supply, that is, a hike in inflation.
Although bank CEOs have focused on toxic debts -- amounting to $33.5 billion – and the reserve requirement ratio as major setbacks for the banking system, the debt held by the government could be another factor making the banking system unable to perform tasks.
Central bank data indicate that the government debt to banks rose to 980 trillion rials during the 11 months to February 19, showing 29.5 percent increase compared to the same period one year earlier.
The Rouhani administration blames its predecessor for the accumulation of debts and has not yet come up with any plan to address the problem.
