Government-owned banks have been unable to expand their capital assets largely due to the growing activities of unauthorized financial and credit institutions across the country, the managing director of the Export Development Bank of Iran said Thursday.
Speaking at a meeting at the Qom Chamber of Commerce, Industry, and Mining, Ali Salehabadi was the latest senior banking official to openly complain about the illegal activities of finance and credit institutions that have “contributed to huge problems for banking system”, IRNA reported.
“These institutions by offering high interest rates have in fact moved large amounts of money from the authorized banking network,” he told the gathering echoing the serious concerns repeatedly aired by President Hassan Rouhani’s administration over the unauthorized but seemingly powerful lending institutions that have been growing like wild mushrooms over the past several years.
The EDBI chief noted that the unauthorized institutions had been using deposits to pay for investment returns, but as deposits shifted to business activities they are now unable to pay the profits (high interest rates) and in the process caused difficulties for themselves and their clients.
He said EDBI capital has remained stagnant since 2007 and pointed to Economy Ministry’s constant search for augmenting the capital of banks, a need he stressed was “of enormous importance.”
According to Salehabadi the EDBI is a specialized bank and does not have many branches to attract capital which makes recapitalization more vital.
“The bank firmly upholds Central Bank of Iran’s regulations, for instance, the official interest rate for Musharikah contracts is 24%, contracts is 24%, while EDBI charges domestic manufacturers 22% interest (2% less than official rate) to support them.”
EDBI receives its capital in hard currency and is not permitted to change it into rials. Given the instability in forex rates and to be able to safeguard the bank’s assets, loans paid in foreign currency must be repaid in that or other hard currency.
Eighty percent of the bank’s total $3 billion capital assets is in foreign currency, the news agency quoted him as saying.
