Iran Private Sector Calls for Strict Rate Cut Control

(Wednesday, September 13, 2017) 09:43

A s the Central Bank of Iran issued a new directive on Aug. 23 setting a deadline for banks to reduce their deposit interest rates to 15%, the Iranian private sector demands strict oversight over the implementation of rate cuts since banks are already trying to find a way out of it.

Gholamhossein Shafei, the head of Iran Chamber of Commerce, Industries, Mines and Agriculture, noted that although CBI's supervision has improved, banks do not adhere to the directives and are looking for a way to ditch the regulations.

"We solemnly ask CBI to utilize its full strength to supervise the banking system," Shafei said, adding that the CBI should not have any considerations in punishing undisciplined banks.  

In June of last year, the Money and Credit Council, the highest policymaking body of CBI, had approved the 15% deposit rates and 18% interest rates that had been earlier agreed upon by bank CEOs. But due to a variety of factors that keep challenging the embattled banks, including a hefty credit crunch, lenders were unable to stick to the rates and continued to offer interests higher than 20% on deposits.

According to the new directive, the implementation of which is mandatory as of September 2, banks and credit institutions are obligated to adhere to long- and short-term deposit rates set respectively at 15% and 10%.

However, according to ICCIMA's reports, banks are already taking different measures to retain their higher deposit rates at least for one more year.

While automakers, investment funds and government participatory bonds offer interest rates even higher than 20%, it's going to be tough for CBI to convince the banks not to offer interest rates higher than 15%.

CBI's new directive has also worried bank depositors and made them look for ways to acquire more profits.

According to ICCIMA's report, banks are asking depositors to close their previous accounts and open new ones to get higher interest rates for at least one more year.

The report indicates that some banks have also sent text messages to their depositors, asking them to come to the bank to get informed of the new regulations. That is while in fact, banks wanted to offer them new contracts before the CBI's deadline so they could protect their deposits and prevent any possible withdrawals.

CBI has finally managed to end the crisis of shadow banks that offered sky-high rates to absorb deposits. The bank has also convinced the government to reduce the rate of participatory bonds so most of the banks' excuses for violating the regulations of interest rates are eliminated, but they also ask CBI to curb automakers' interest rates.

That is a demand that has yet to be realized since currently, the biggest automakers in the country are offering 22% plus pre-sale interest rates.

However, the Ministry of Industries, Mining and Trade and CBI have jointly issued a mandate that requires automakers to reduce their interest rates for pre-sale deals.

According to the new mandate, pre-sale interest rates will decline by 7% to reach 18% from the previous 25%. Automakers are obligated to implement the rate cuts as of January 2018.