Investment Funds Given Leeway in Stock Market

EghtesadOnline: The Central Bank of Iran has agreed to increase the investment ceiling for bank-affiliated investment companies in the share market, a move seen as another push to lift the sagging stock market.

News ID: ۷۵۱۵۱۶

18 November 2020

CBI governor Abdolnaser Hemmati said this in a note on his social media account on Tuesday following a meeting with members of the High Council of Securities and Exchange, the top decision-making body of the bourse.

As per the council’s decision, the ceiling for investment companies in the stock market has been raised by 300 trillion rials ($1.5 billion) to reach 500 trillion rials ($1.9b).

The senior banker sought to reassure investment funds operated by banks and credit institutions that the CBI is willing to help them boost capital.

There are no restrictions on creating new fixed income investment funds by banks, according to Hemmati who said the new measures are aimed at "boosting the capital market and improve the role of banks in augmenting  investors’ confidence.”

After historic gains from the beginning of the current fiscal year (March) Tehran’s share market started to plunge in mid-August. The benchmark of Tehran Stock Exchange, TEDPIX, grew close to 300% before diving deep into the red.

Market observers blame major shareholders, institutional traders and those seemingly with inside information for the downturn saying that they increase offers when share prices reach their peak.

The government has tried to prop up the market sporadically by requiring institutional buyers and investment funds to boost demand.

On Monday, the Securities and Exchange Organization instructed listed companies to designate market makers or face the consequences.

Elaborating on the council’s decision, the SEO chief  Hassan Qalibaf-Asl said that the CBI has agreed to "facilitate and expedite the process of issuing permits to set up investment funds affiliated to banks."

"Banks can set up more than one investment fund," he was quoted as saying by the Securities and Exchange News Agency.

As per rules governing the operation of bank-based investment funds, they are banned from investing in any market other than the capital market.

Investment funds are obliged to invest a part of their financial resources in the so-called Justice Shares, according to Qalibaf-Asl.

Justice Shares are shares of government-owned companies that were given free to the six lowest income deciles 15 years ago. Shareholders were not allowed to sell the shares until last May.

Justice Shares are owned by an estimated 50 million Iranians largely from the middle and lower end of the economic ladder. Analysts say the bearish trend in the stock market is also due to the excessive supply of Justice Shares by shareholders. The stock market regulator has banned retail trade of the shares until further notice.

Interest Caps

Addressing concern among stock investors about a possible decision to raise bank deposit rates, Hemmati said such a move is not on the table. He reiterated that lenders must abide by rules approved by the Money and Credit Council, the top monetary policymaker.

Local media reported recently that some banks were offering up to 20% on deposits. This is while lenders, as per MCC rules, are not allowed to offer more than 18% on term deposits. The unsubstantiated reports hurt the capital market.

Hemmati again asked lenders to comply with the ceiling and floor of interest rates in the interbank market.

"The CBI is committed to the [previous] rates. Lenders have also agreed not to raise interbank rates more than 20%", he wrote in his Instagram account.

Last week the CBI said "the average interbank rate reached a peak in the month to Oct. 21, registering an average of 20%", adding that the rate surpassed the upper bound of interest rate corridor (IRC) in the final days of the month.

As a component of open market operations, the CBI's new monetary policy IRC is a mechanism under which it sets the floor and ceiling of policy rates and lets other money market rates, such as interbank rate, move within this setup.

The CBI has warned lenders that high interest rates in the interbank market expose their poor performance.