Economy, Business And Markets

Private Banker Calls for More Leeway

Private Banker Calls for More Leeway  Private Banker Calls for More Leeway

The banking industry plays a crucial role in the domestic economy and banks’ must strive to uphold and implement rules and regulations, Kuroush Parvizian, CEO of Parsian Bank said on Tuesday.

“Banks serve the interest of the masses and the economy. However, we should have logical expectations from lenders in line with the realities of the economy and the rules and regulations,” he was quoted as saying by ILNA.

Speaking on state TV, he stressed the importance of easing regulations in order to give banks more space to maneuver. “The Money and Credit Council should modify the regulations and increase opportunities for banks. Our banks need to be updated and trained on new financial tools.”

On the highly sensitive issue of lowering deposit/lending rates, Parvizian said that private and public banks had agreed to lower rates in the previous calendar year (ended March 19) in tandem with economic indicators. Elaborating on the issue, he said the pattern of raising interest rates started back in 2012 (before the present government took office) when the inflation rate “jumped to 30% and above and left lenders with little choice but to increase interest rates.”

The powerful Money and Credit Council lowered interest rates twice last year after the Rouhani administration succeeded in curbing the hyperinflation, bringing it down from 40% in the summer of 2013 to 12% in 2015.  

Parvizian stated that disinflationary policies initiated in 2013 when President Hassan Rouhani took office, was effective in curbing inflation and soon after the banks and lending institutions started lowering rates accordingly. “However, the unauthorized credit institutions active in the unofficial money market continued to offer high rates and exerted pressure on the law-abiding lenders.”

The banker warned against any hasty decision to lower interest rates saying such a move could encourage speculative activities, a run on the banks or the flow of money into the bullion and forex markets with negative consequences for those markets.

Banking and monetary officials have hinted at further interest rate cuts during the current fiscal year but the Central Bank of Iran insists the move should come not in the form of official decrees but by the consent of lenders.

  Banks v Offenders

Elaborating on the plague of the unofficial money market, the head of the major private lender said companies with high debt and low profit normally turn to the unauthorized money market for refuge.

“The unauthorized money market is not limited to the unregistered credit and financial institutions and is much larger. Smuggling activities are also funded via this market,” he claimed.

While there is no reliable data on the exact amount of contraband smuggled into the country, Habibollah Haghighi, head of the special Taskforce to Combat Smuggling of Goods and Foreign Currency has put the figure at $10 billion to $25 billion a year.

Parvizian pointed to Iranian banks as the major sources of funding and called for the easing of the burden on banks and a more effective role by the capital market. “According to the government and the CBI policies, the capital market is largely responsible for funding macro projects and businesses while banks are tasked with financing small and medium enterprises.”

In response to a string of violations in private and state-owned banks in recent years, the Parliament passed a new banking regulations act on Monday to counter financial wrongdoing in the key sector. According to the newly-passed law offenders will face the full force of the law, including prison terms six months to three years.

The CBI and senior officials have regularly called on banks to mend their ways and uphold all the norms guiding transparency and openness, especially when lending to corporates and the top companies and industries.

  Striving for Stability

In a separate development, the Central Bank of Iran announced that it supports banks’ decisions as long as they abide by official policies.

“The Money and Credit Council, as the highest regulator of the financial markets, strives for promoting long-term stability in the markets, especially financial markets, rather than managing the markets with shocks,” Fars News Agency quoted Peyman Qorbani, CBI’s deputy for economy, as saying, during a press conference on Wednesday.

He recalled that interest/lending rates go up and down based on macroeconomic factors, rather than being an impacting factor on the national economy. “Therefore, the CBI decided to lower interest rates indirectly by entering the interbank markets.”

“The central bank managed to lower interbank rates to 17% last week, from 29% in the beginning of the last fiscal year,” he said.

Banks agreed in February to reduce the one-year deposit rate from 20% to 18% while the overnight deposit rate would be cut below 10 %.

CBI’s ideal interest rate is 2% above the rate of inflation, Qorbani said.  “However, due to the shortage of financial resources rates cannot be lowered in haste.”

The inflation rate currently stands at 12%, while banks are offering 18% for one year deposits.

When asked about banks’ runabout methods for offering higher rates, like establishing mutual investment funds, Qorbani said “The CBI has warned banks against such unruly practices and banks have modified their rates ever since.”

Experts have expressed concern over banks’ alternative methods for offering higher deposit rates to customers in a bid to oust their rivals in attracting retail savings. It is said that banks normally guarantee an interest of 22%-24% to those who put their money into mutual investment funds created by the lenders’ subsidiary investment banks.

“All said, banks and lending institutions have become more law abiding,” the CBI official said.