The total time deposits in the banking system reached 2,796 trillion rials ($19.8 billion) by Dec 21, registering 24.2% growth compared to the same period in 2018.
Central Bank of Iran data show long-term deposits accounted for 80% of the total amount. Long term deposits reached 2,236 trillion rials by the end of the ninth month of the current fiscal year, nearly 27% higher than the year ago. Short-term deposits grew 19% during the 12 months.
The total amount of Qarzol-Hassaneh (interest-free) deposits also increased by 30.5% year-on-year.
Banks are allowed to offer 15% return on one-year deposits. The CBI has set the cap for return on short-term and sight deposits at 10%.
Long-term deposits gained traction after the Central Bank of Iran decided to scrap overnight interest rates in January 2019.
The new interest rate mechanism obliged banks and credit institutions to pay interest on deposits on a monthly basis with the minimum balance for the month as base.
The initiative, many economic observers presumed, would shift liquidity from the short to long-term deposits, which in turn would empower banks and credit institutions to lend more to businesses and industries.
However, CBI data showed otherwise as the growth in value of sight deposits far outpaced the growth in long-term deposits.
Total volume of sight deposits has increased by 56% during the year to Dec 21, to reach 802 trillion rials ($5.6 billion). This shows that long-term deposits are increasingly turning into sight deposits, raising new concerns about inflation as depositors may take their money to other financial markets.
Valid Concerns
Financial experts warn that in absence or delays on the part of the CBI to adopt contractionary policies, a bigger portion of long-term deposits could turn into sight deposits. This is raising fears that financial markets in Iran may experience new price shocks emanating from the flood of new liquidity.
Contractionary monetary policy involves central banks raising interest rates to reduce the money supply in order to curb inflation.
Expanding the share of sight deposits partly corroborates the assumption of depositors’ unwillingness to keep their money in banks at 20%, which obviously is low compared to the galloping inflation and systemic tanking of the national currency.
CBI data also show that private banks and credit institutions were more successful in attracting deposits from non-governmental entities during the past 12 months. Private lenders recorded 30.4% growth in the volume of deposits by private entities. More than 70% of private sector deposits were in private banks by Dec 21.
According to the CBI, total outstanding loans rose by 9.7% during the first three quarters of the current calendar year that ends in March, to reach 14,264 trillion rials ($101.1 billion).
Majority of the loans were granted by non-government banks and credit institutions. Accordingly, private lenders gave 8,825 trillion rials ($64 billion) in loans -- up 8.3% compared to the end of the last fiscal year.
Commercial banks recorded 15.7% growth in lending during the period, while growth in lending by specialized banks climbed by 9.2%
