In comments posted on the news website of Iran’s Chamber of Commerce, Industries, Mines and Agriculture, Ahmad Hatami Yazd, a former banker, has claimed that non-performing loans (NPLs) are the main problem and not the interest rates as many believe.
“Whether you increase or decrease interest rates, do the banks have enough credit to be able to provide loans?” he asks. “They don’t have enough resources, not even to provide loans with an interest rate of 25%.”
But, basically, there shouldn’t be a shortage of lending, he believes, “because unfortunately since the Rouhani’s government came to power, liquidity has risen by 70%. So even with the 70% increase, why can’t the banks provide sufficient loans?”
The reason, he says, is because they gave money to those who simply are unable or unwilling to return it.
“There are companies, institutions and individuals who have taken significant amounts from banks and have not met their commitments, says Hatami. “For instance they have imported goods, sold them here, collected the money, but won’t repay the loans to banks.”
This has locked-up the much-needed credit. “Until this issue is resolved, I really don’t think anyone would benefit whether the rates are brought down or pushed up.”
As to why the private banks insist on bringing the rates down, this is what the former CEO of Bank Saderat had to say: “Our bank CEOs want to do something to please the government and the central bank because this will help them to retain their current positions.”
A Case of Unprofessionalism
Many of the CEOs are unable to run their banks as per international standards and don’t have the necessary knowledge and experience, according to Hatami. “If they were professional bankers, they wouldn’t provide loans in this manner,” he said. “And some don’t even have an independent will as they have given special loans to selected people at the behest of others and are now stuck.”
The analyst is of the belief that bankers calling for rate cuts need to come up with intelligent economic analyses detailing the results and consequences of their decision for the economy and their own banks. “Can they meet the returns they have promised the depositors should the interest rates come down?”
Noting that until last year there was no need to lower the interest rates because they were either below or at an equal level with the inflation rate, he said: “This year, circumstances are different. While interest rates are still high, inflation has come down. If we consider an 18% interest rate and a 10% inflation rate, it means the investor will enjoy an 8% profit. But until last year, investors would face an 8% loss because inflation would eat away their money.”
Now things have changed; “it is expected that interest rates come down, but not based on rates in Europe and the US. If the inflation rate is 10%, then the interest rate can be somewhere between 12-15%,” because anything higher than that would be “unjustifiable”.
“But even this applies when resources are not locked up. If rates come down and banks are unable to lend, then what good will come out of it?”
