A central bank official rejected the claim that the rising number of banks would necessarily foster competition, calling on the Competition Committee to urge lenders to compete with one another in offering better services.
In the past decade, branches of commercial banks and credit institutions increased rapidly, as property prices were climbing. It was thought that it was a sign of good performance if banks bought more buildings and opened new branches.
Farhad Nili, head of the Monetary and Banking Research Institute, believes the committee needs to stop urging banks to physically expand.
“Instead, it should allow them to compete in absorbing deposits via offering diverse services and rates,” he added.
The Money and Credit Council put a 20% cap on deposit rates on April 28, forcing banks and credit institutions to lower their rate ceiling by two percentage points.
Nili said despite the decision, banks can compete in offering diverse rates of sight deposits. However, he added, many lenders offer higher deposit rates to keep up with their peers.
“To improve the banking system, we need to create competitive environment among private and state-owned banks, but some state-run lenders are unfairly supported by the government. This would damage the competitive environment,” Banker news website quoted him as saying on Wednesday.
To address the issue, the official urged the committee to precisely define competition terms and conditions template in an effort to regulate competition environment.
“Taking legal action against unauthorized credit and financial institutions is vital as well, a move that requires the three branches of the government to join forces in tackling the problem,” he concluded.
