Lawmaker Raises Alarm on Soaring Interbank Rates

EghtesadOnline: Lack of proper supervision on interbank market operations has caused a considerable surge in interest rates, said the head of Majlis Economic Commission.

News ID: ۷۳۹۷۷۵

12 February 2017

“Reports suggest that the interbank interest rate has reached 25%. This is a disaster for the banking sector, as it has increased the cost of financing to 30%,” ICANA also quoted Mohammad Reza Pour-Ebrahimi as saying on Saturday.

The lawmaker noted that the current link among financing costs, lending rates and the shareholders’ dividends is not logical.

“Lenders have been paying high costs for attracting resources in recent years. Therefore, they have not managed to lend to businesses, due to the high interest rates,” Financial Tribune quoted him as saying.

“Lenders offer 30% interest on deposits, [I wonder] which economic sector can return 40% on investments, so that lenders would be able to meet their commitments to shareholders.”

Pour-Ebrahimi said the deposit rates should be approximately 2-3% higher than the rate of inflation.

Iran's inflation rate dropped to single digits in 2016, after nearly three decades.

Referring to inaccuracy in banks’ financial statements in previous years, Pour-Ebrahimi said the Central Bank of Iran’s measure to require banks to conform their statements to IFRS standards has resulted in the identification of banks' problems.

Following its active intervention in the interbank market, CBI aims to restore calm to the market and tackle the expanding credit crunch. As a result, the interbank market funding rate gradually declined from a record high of 29% at the beginning of March 2015 to 17% early this year. This trend, however, was short-lived.

CBI had cited its intervention as the main reason for succeeding in bringing down bank interest rates without resorting to its official decrees, as had been the controversial practice for decades.