Economy, Business And Markets

Lenders Complying With CBI Interest Rates

Lenders Complying With CBI Interest RatesLenders Complying With CBI Interest Rates

A deputy governor of the central bank has rejected interest rate violations by banks saying rates set by the Money and Credit Council are by and large upheld by the lenders.

Speaking to reporters on the sidelines of the 26th annual Conference on Monetary and Exchange Rate Policies on Tuesday, Akbar Komijani said, "The Central Bank of Iran is regularly strengthening its supervision and employs a strong team of experts who monitor the rates on a daily and weekly basis."

Responding to a claim by a reporter that the CBI-set interest rates are not observed by all lenders, Komijani said: "I will not endorse this (report). CBI data in unambiguous terms shows that most banks are diligently adhering to the interest rates set by the MCC," Mehr News Agency reported.

The MCC cut the deposit rate ceiling (for one-year fixed deposits) from 22% to 20% last April, following several weeks of heated debate on the key issue. It also reduced the lending rate ceiling to 24% from 28%. Despite widespread reports of banks' ingenious methods to dodge CBI rules regarding interest rates, officials have announced that further rate cuts in line with the inflation rate are in the pipeline.

Banks' Consolidation

The senior official said the merging of banks and monetary institutions is on the CBI agenda and is being pursued.

According to the official, there is still no definite plan as to how, when and which banks would be merged, especially the credit and financial institutions. "It is the shareholders who would make the (final) decisions."

Komijani put the economic growth rate for the fiscal year that started in March at about 4 to 5%.  

Apart from the 32 banks doing business in Iran, there are nine large credit institutions operating, some of which still lack CBI permit. Reports suggest that hundreds of credit institutions are interspersed throughout the country. Plans to regulate these institutions – which are estimated to hold 20-30% of the money market – gathered pace after President Hassan Rouhani was elected in 2013, but the results have not been impressive.

Meanwhile a member of the Securities and Exchange High Council said merging banks is the only feasible path forward for the teetering banking industry under the current recession.

"Given the scale of its problems, the banking industry will yield less profit for its shareholders," quoted Hussein Abdoh Tabrizi as saying.

Recalling that the subpar performance of banks is not just because of the domestic macroeconomic environment, he said, "There is the concern that we simply don't know to what extent the banks' financial statements can be relied upon."

The analyst was of the opinion that some of the data released by the banks is "worrisome".

Iran’s lenders have long operated with low capital adequacy requirements and inadequate and inefficient regulatory and supervisory mechanisms. They were further weakened by the controversial policies of the former government, which forced them to provide cheap loans to selected businesses, which mostly went under piling up billions of dollars of bad debts for the struggling banks. The international economic and banking sanctions were another major irritant that reportedly pushed the state-owned lenders further into the red.

When the sanctions were in place banks were mostly able to conceal their shortcomings along with their mounting losses. But with the country now keen on attracting foreign investment and business partnerships, observers are now sounding the alarm over the banking state of affairs and their inability to underpin business ventures and contribute to economic growth.