Economy, Domestic Economy

Fueling the Depositors’ Risk

Fueling the Depositors’ Risk Fueling the Depositors’ Risk

The governor of the Central Bank of Iran, Valiollah Seif, made a public announcement on Saturday about the so-called “unauthorized financial institutions,” which are believed to have run a profitable business by violating regulations or using loopholes.  

The governor has asked investment depositors “not to risk their cash resources and savings in search of receiving higher interest rates” offered by unauthorized financial institutions.

There are two outstanding points about this announcement.

First of all, the CBI’s governor is responsible for creating a dynamic and secure economic environment by regulating the country’s banking system and making its monetary policy.

Seif’s announcement recalls a common misunderstanding among Iranian officials about the tasks of the CBI governor. Officials seem to be expecting the governor to appear in media every week to make strong statements, which could cause uncertainty among investors who need to plan for future developments.

Instead of releasing such statements, the CBI governor can focus his efforts on crafting a systematic supervision mechanism that can nip unauthorized institutions in the bud. At the same time, the services offered by authorized banks must fit consumers’ needs, in a competitive environment.

The second point is about the behavior of the depositors as consumers in this market. Although, government officials make such statements from time to time and warn depositors about the risks involved in depositing in such institutions, the depositors do not have many options. They have no choice but to risk their life-time savings to benefit from a more realistic rate on investment.

The very limited services offered by financial institutions within the Iranian market, combined with the absence of reliable banking services in the market and as mentioned above the lack of a systematic supervision on the part of the central bank, has led consumers to take a higher risk in order to keep the value of their cash resources steady over time.

Since the beginning of the current economic downturn, every time government officials panicked about the market reactions to their policies and decisions, surprisingly their immediate answer fueled the stress caused by uncertainty in the market.

President Hassan Rouhani made a pragmatic decision, after he took office, in appointing a “spokesman for economic affairs” in order to create a unique and reliable source when it comes to economic and market news.  

It seems that it’s time for the cabinet’s economic team to give up their interest in public appearances and follow the president’s lead in moderation, that is, to keep the market tensions down by avoiding unhelpful remarks.  

On the other hand, the current gap between the consumer’s needs and the services available within the banking sector stands for a significant business opportunity in this market.