CBI: Loan Rate Cuts on Horizon

After recent measures to make banks adhere to lower deposit rates, the Central Bank of Iran is mulling a reduction in loan rates, the bank's second-in-command said on Tuesday.  

"We have currently lined up several measures and we will witness a significant change concerning interest rates on loans, but this will take a while [before their implementation]," Akbar Komijani was also quoted as saying by IBENA.

While CEOs of banks had agreed to lower their deposit and loan rates respectively to 15% and 18% last June and the CBI subsequently approved  it with a directive through its decision-making body Money and Credit Council, lenders found themselves unable to adhere to the lower rates because of several reasons, including a hefty credit crunch.

CBI sought to make lenders stick to the rates through a directive issued late August, saying banks are forbidden to offer interests on deposits higher than 15% from September 2, but has yet to make a move on loan's interest rates.

"Investigations involving more than 1,500 bank branches show that banks are abiding by the lower rates," he said.

Komijani also addressed media claims that a number of lenders are still paying above 20% interest on deposits, stressing that if any bank is doing this, they will face harsh disciplinary measures as some branch directors have already been sacked for falling foul of the directive.

Economy Minister Masoud Karbasian has earlier warned banks offering higher rates, saying that while their conduct is frowned upon by the government, CBI and Economy Ministry, "the interest banks pay higher than 15% to deposits will not be considered by us as their cost and we will make them pay its tax".  

Echoing recent remarks by CBI Governor Valiollah Seif, his deputy said the fact that banks could offer higher deposit rates in the 11 days between the directive and its implementation was pre-planned.

"It was not against the directive and actually caused a transformation in the deposits in that it turned them from short-term deposits to one-year stable ones, which also increased the lending capacity of banks," Komijani said.

Seif had said that as a direct result of the directive, the share of short-term deposits has decreased to 25% from 35.9% while long-term deposits have increased to 44.7% from the previous 34.5%.

As acknowledged by both  Komijani and Seif, this means that the ever-increasing liquidity did not snowball because depositors 'money turned into long-term deposits that will not be taken out of the banks for at least another year as the directive would not be enforced retroactively.

Unfreezing Trading of Banks' Stocks

Komijani also referred to recent developments regarding the balance sheets of banks and said, "CBI and the Securities and Exchange Organization are currently cooperating and if any lender finalizes their balance sheets, their shares will traded again on the stock market."

Last Monday, Seif and Karbasian reached an agreement, based on which CBI would be the official entity in charge of setting reporting standards and banks will have to provide their balance sheets.

This means that a two-year disagreement between CBI and the Audit Organization  over who gets to devise the standards was put to an end and when lenders devise their balance sheets as per the International Financial Reporting Standards-based CBI template, they will once again be able to enter the stock market.