Mohammad-Reza Nematzadeh, minister of industry, on Monday criticized the Central Bank of Iran for pushing commercial banks to set aside large amounts of deposits, known as the reserve-requirement ratio, in case of financial trouble.
“In certain countries banks do not set aside any reserve requirements at all, but in Iran they do so despite the fact that most of them are state- or semi-state-owned,” Nematzadeh said in a gathering in Tehran of capital market activists, as IRNA reported.
The minister said he had personally written to President Hassan Rouhani urging him to help reduce reserve requirement ratio.
The lowering of reserve requirements will benefit commercial banks, Nematzadeh said.
In addition, he implicitly blamed the CBI for high loan interest rates and criticized the regulator for charging banks 34 percent interest when they borrow from the central bank. “Accordingly,” he said, “to compensate their costs, the banks have no option but increasing interest rates on loans to about 30 percent.”
This is a peculiar action given that all recent efforts have been made to reduce loan and deposit interest rates, the official noted.
Economy Minister Ali Tayebnia and CBI Governor Valiollah Seif also attended the gathering.
Deposit Rates
To decrease deposit interest rates in accordance with inflation, Tayebnia said, “CBI must firstly regulate the unruly credit institutions,” referring to those offering as high as 27 percent interest rate on deposits while the legal ceiling is 22 percent.
He clarified that even if all commercial banks comply with CBI orders, “the measures to decrease interest rates will fail so long as some credit institutions do not uphold the regulations.”
The main reason why interest rates have soared so high is that the money supply within the financial market is either too little or too much.
“To solve this problem, bank capitals must increase and the government should settle its debts to the banking system,” he said. Also, commercial banks must refrain from running non-banking businesses, he added.
On the issue of non-performing loans (NPLs), Tayebnia said specialized committees have been formed within the banking system to carefully assess bad loans.
Consequently debtors shall be classified, he further said. “If a debtor has no record of wrongdoing and the bad loan is merely a result of the stagnant economy and sanctions, the banking system will not hesitate to assist to ease the repaying process.”
The banking system however will not show leniency towards debtors who have bad records, he stressed.
Closer Supervision
The money and capital markets are closely intertwined and almost inseparable, according to Seif who was attended the meeting.
The money market faces the same volatilities the capital market does, he warned, adding that initiatives taken to stabilize the capital market are “insufficient”.
In addition to the capital market, serious and essential initiatives should be taken in the money market to stabilize it, SHANA quoted the CBI governor as saying.
“We don’t want to look back and blame the previous administration for all financial ills but some have tried to blame the current administration for them. Here I would like to announce that the huge amounts of overdue loans are from the past and have nothing to do with the Rouhani administration, which has taken office for only one and a half years,” he declared.
The NPLs are estimated at $950-2,000 trillion rials.
