High Overdraft Fees Paying Off

EghtesadOnline: As the Central Bank of Iran has beefed up its regulatory watch over monetary and banking operations, its efforts to curb bank overdrafts, especially in the quarter to March 20, 2017, have borne fruit, CBI’s deputy for credit affairs announced.

News ID: ۷۷۷۷۵۰

18 July 2017

“If I were in charge, the penalty concerning overdrafts would reach 50%, since this money is hot money and can stoke inflation,” Ali Asghar Mirmohammad Sadeqi was also quoted as saying in an interview with Fars News Agency.

Back in February, Ali Divandari, the head of Monetary and Banking Research Institute, announced that the 34% discount rate set for banks’ overdraft fees is a penalty that prevents them from using CBI resources and investing in other markets since it raises the monetary base and stokes inflation.

According to CBI data, state-owned banks were at the forefront of reducing their debts to CBI, which dropped by 13.5% year-on-year last year, Financial Tribune reported.

Private banks’ debts to CBI decreased by over 20 trillion rials ($5.3 million) in the month to March 20.

However, private banks’ debts to CBI witnessed a 206% YOY growth in this period.

Some pundits believe that if CBI were to set a ceiling for lending to commercial banks, it would help solve the issue.

Rejecting the notion, Sadeqi said, “If CBI does that, banks will withdraw all their allotment [they are entitled to draw] on the first day.

“CBI has pushed private banks into the interbank market and currently they increase their capitals from that source.”

According to Sadeqi, CBI also considers other punitive measures for unruly banks, such as shutting these banks off Satna. Satna is the internationally known as Real Time Gross Settlement and is among online provisions launched by CBI in recent years.

Divandari had earlier said the current situation is a result of the unprofessional decision of the past administration, which obligated banks to offer cheap loans that were used to engage in other businesses.