Settling government debt to banks, launching an asset management body to spare the banking system from troubled assets and balance sheets, raising the capital of banks are on the agenda to reform the banking sector, Central Bank of Iran deputy chief for economic affairs, Peyman Qorbani said on Sunday.
“There are plans to launch a debt market, promote corporate sovereignty, take stricter measures against unauthorized credit institutions, and reform banking and central banking laws,” Qorbani was quoted as saying by the CBI website.
Trade will be conducted through letters of credit from now on, the CBI official said, adding that the bank seeks to revive the use of credit lines and refinance in the banking system. “This would reduce demand for foreign exchange.”
Noting that sanctions had restricted access to the international financial system and raised the cost of trade, Qorbani said, “With the lifting of the sanctions the country regained access to global finance, which will help boost trade.”
Iran’s nuclear agreement with the six global powers came into effect last weekend as the International Atomic Energy Agency confirmed that Tehran had complied with the deal’s terms calling for it to curb aspects of its nuclear program .
“Policies of previous governments (open to question) burdened the present administration with a total of 1.1 quadrillion rials ($36.4 billion) of debt to banks and this has pushed banks into unhealthy competition for deposits by offering high returns,” he said.
Practicality
“The ideal interest rate should at the most be 2%-3% above the inflation rate,” he said. According to CBI data, inflation currently stands at 12% but key deposit rates hover around 20%.
Qorbani also argued that banks do not favor high interest rates because “in practice they gain more profit when the rates are lower and more sensible.”
“High rates would direct resources toward risky businesses resulting in a surge in banks’ toxic assets.” Pointing to the CBI’s partial achievements in lowering the interest rates, he said, “Rates have become ‘sticky’, creating a challenge for the economy.”
“Rates should be in accord with market mechanisms and the CBI as the regulator should check rates’ compatibility with the economy at macro level,” he added.
Qorbani also referred to CBI measures for taming unauthorized financial institutions and said, “The measures will continue until the problem is totally solved.”
Following the “Supreme Security Council’s approval, “the CBI, the Judiciary, Ministry of Intelligence, Prosecutor’s Office and the Law Enforcement Forces have formed a special joint task force to tackle the issue.”
