Data released by the Central Bank of Iran show term deposits increased at a much slower pace than sight deposits, another sign that savers are less inclined to park their money for longer periods in banks.
Total sight deposits reached 10,935 trillion rials ($36.4 billion) by the end of the fourth calendar month to July 22. This was 61.4% higher on the same period last year. Sight deposits increased by 21.5% compared to the end of last fiscal year in March.
Term deposits lagged rising 32.5% to reach 40,681.4 trillion rials ($135.6b) by July 22. The rise was a fifth of sight deposits in the four months.
Sight deposits had been the main laggard for months due to the deep recession in asset markets. But now that is history.
Increasing traction of sight deposits and declining appeal of term deposits indicates the visible inability of banks to convince savers to keep their money with them. One primary reason is unattractive interest rates.
Decline in term deposits is usually construed as a sign of rise in inflation expectation. There is strong reason to believe that the people’s desire to keep their money for longer periods in banks because they anticipate higher returns in other assets.
CBI data categorized term deposits into long-term, short-term and Qarzol-Hassanah (interest-free). Accordingly, short term deposits stood at 14,509.2 trillion rials ($48.3b) by July 22, up 30.8% y/y. Long-term deposits were near 21,118 trillion rials ($70.4b), up 28%.
Qarzol-Hassanah deposits increased 42% in 12 months, reaching 3,532 trillion rials ($11.7b).
Economists see unattractive interest rates as the main reason behind exodus of capital from banks. Despite mounting calls by independent experts to raise interbank rates as a proven cure for runaway inflation, monetary policy and decision makers are reluctant to go too far too fast, arguing that it can hurt the already limping share market.
They also point to the dysfunctional banking system as an impediment in raising rates, saying this will increase the cost of money and exacerbate the problems of stressed banks.
Interest rates that banks offer on deposits at best is less than half the annual inflation. As per current rules, interest on one-year maturity deposits is 16% and 18% on two-year deposits. On short-term deposits with 3-month maturity the rate is 12% and 14% on six-month deposits.
