Interbank Lending in Iran Rises 67%

EghtesadOnline: The aggregate value of interbank market transactions reached 107,149 trillion rials ($792 billion) in the last fiscal that ended in March to register a solid 67% growth compared to a year ago.

News ID: ۷۸۴۶۹۳

28 May 2019

According to IBENA, interest rates for the interbank lending averaged 19.47% in the previous year, up  5% compared to a year before.

In terms of volume of deals, a total of 40,663 deals were conducted during the reviewed period compared to 38,101 in the inter-bank market a year before, indicating 6.7% rise.

Interbank market is a market in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight, according to Financial Tribune.

A look at deals in the past fiscal shows that the monthly value of transactions were of an ascending order to reach a monthly value of 14,640 trillion rials ($108 billion) in the month to March 20 (marking the yearend).

Average daily trading rose from 270 trillion rials in the first month of the previous fiscal (March 21-April 22) to 58.5 trillion rials in the final month.

Data show that over the past year state-owned banks lent 46,370 trillion rials ($342 billion) to other lenders, accounting for 43.28% of the total deposits in the interbank market. The same banks accounted for 61.9% of the total lending a year earlier.

In addition, privatized banks lent 38,250 trillion rials ($283 billion) to other lenders in the interbank market, private banks gave 23,000 trillion rials ($170 billion), and credit institutions 2,120 trillion rials ($15 billion).

Privatized banks include lenders whose shares have been divested, in whole or in part, to the private sector as per the provisions of Article 44 of the Constitution. In other words, they differ from private banks in that they were originally founded and owned by the government.

Article 44 compartmentalizes the economy into three parts, namely public, cooperative and the private sector. It obliges the government to transfer 80% of the shares of state-owned and affiliated companies to nongovernment entities.

Drawn from Article 44, the existing rules stipulate that all state banks, not including the Central Bank of Iran, Bank Sepah, Agribank, Bank Maskan, Export Development Bank of Iran and Bank of Industry and Mine, must divest 80% of their shares to private ownership.

Bigger Share

Data also show a higher inclination of state-owned lenders to borrow from other banks in the inter-bank market in the past fiscal. However, private banks held the lion’s share of borrowing from other lenders.

Private banks borrowed 61,000 trillion rials ($451 billion) from other lenders or 57% of the total money borrowed.

Likewise, the value of loans by state-owned lenders rose from 8,780 trillion rials in 2017-18 to 23,000 trillion rials ($170 billion) in the past fiscal to account for 19% of the total borrowing.

The share of credit institutions’ borrowing stood at 11,000 trillion in the past fiscal.

This is while data show a decline in the value of borrowing of privatized banks from the interbank market. These banks borrowed over 17,000 trillion from other lenders in fiscal 2017-18. The figure fell to 14,000 rials in the past fiscal.

Iran’s interbank market was established in July 2008 with the aim of strengthening the management of liquidity held by banks, facilitating short-term lending among banks, maintaining monetary discipline and improving the implementation of monetary policies announced by the regulator.

CBI has been in charge of organizing and supervising the market and when necessary intervenes in the market to maintain optimal interbank interest rates.