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Banks to Enter Equities

Banks to Enter EquitiesBanks to Enter Equities

B anks and credit institutions can invest indirectly in the equity markets. The Central Bank of Iran issued a directive pertaining to this matter on Monday. The move is aimed at increasing equity market liquidity and in turn increasing market depth and reducing the market’s susceptibility to wild fluctuations.

“While conforming to investment regulations, commercial banks and credit institutions can invest in mutual funds,” the central bank directive states.

To create an optimal investment environment, given the fact that commercial lenders and credit institutions can control huge fluctuations in the stock market, and stabilize and counter balance demand by supporting mutual funds, the CBI allowed for this move.

The directive says: “One of the most effective actions leading to the development of a country’s economy is to optimally use available financial resources through collecting deposits of every single citizen and allocating  them in an effective way.”

Mutual funds are relatively new in Iran’s financial markets. They can play a central role in absorbing deposits, specifically in smaller ones. By doing so, these firms can in turn provide financial resources to other economic entities via investing in their stocks and help the economy.

Aside from providing firms with capital, mutual funds also leave a positive mark on reducing cash circulation, thus reducing inflationary pressures.  

Furthermore mutual funds are key in developing capital markets, lessen liquidity problems faced by investment companies, attract foreign investment, and assist in the privatization processes.

Financialtribune.com