Central Bank of Iran will soon reduce up to 3% of banks’ reserve requirement based on their recent performance and increase the reserve requirements of unruly banks as a punitive measure.
“The Money and Credit Council intends to elevate banks’ lending power which is also helpful in cutting lending rates without government decree,” said Peyman Qorbani, CBI’s vice-governor in comments posted on the bank’s website.
Cutting banks’ reserve ratio was initially envisaged in the government’s simulative package unveiled on October 18.
The package intended to reward law-abiding banks by allowing them to have more cash and thus empower them to offer more loans, especially to small businesses.
Qorbani said that the reserve requirement cut would be calculated based on banks’ deposits up to Dec. 10.
“To assess the performance of the banks, the CBI monitors banks’ offered deposit rate, the quality of their cooperation with CBI inspectors and the level of their transparency.”
According to present regulations, the central bank holds between 10%-30% of banks’ deposits which is a tool for implementing the CBI’s monetary policies as well as protecting customers should the banks falter.
Unauthorized Lenders
Unruly operations in the banking system remains one of the government’s major challenge for reviving the economy as there are over 7,000 financial and credit institutions operating without permits from the regulator.
Ali Tayyebnia, the economy minister, voiced renewed concern on Wednesday that the influential unauthorized institutions have been undermining the financial system.
“Economic development highly depends on improving the financial system of the country,” he said.
Recalling that the banking system’s performance was relatively good during the long period of sanctions, Tayyebnia said the mountain of non-performing loans and the government’s staggering debt to banks had deprived the banking industry from playing an otherwise more positive role in the economy.
“The government owes 1 quadrillion rials ($33.2 billion) to the banks,” the minister noted. He added that the government intends to enhance CBI relations with the banks a factor that will be incorporated in the next five-year development plan (2016-21).
The sixth plan which will be presented to Parliament in the coming days has given CBI increased authority to crack down on uncertified lenders with the full force of the law.
It envisages the power to impose penalties on these institutions up to 1% of their initial capital, put curbs on dividends paid to shareholders and bonuses to managers, revoking shareholders’ voting rights, banning them from purchasing other banks’ shares, forcing them to sell their stocks and revoking their license.
