Iranian Private Banks Resist Higher Interest Rates

EghtesadOnline: Private banks and credit institutions are against increasing interest rates, the secretary of Iran's Private Banks and Credit Institutions Council said.

News ID: ۷۸۷۴۳۳

15 December 2021

"Bank CEOs agreed to comply with rates set earlier by the Money and Credit Council. Some banks are [already] offering higher rates on term deposits. Further increases obviously will not benefit them," IBENA quoted Mohammad Reza Jamshidi as saying.

Last year the MCC allowed lenders to raise interest on term deposits, apparently to curb the scale and scope of money flooding into some financial markets and avoid further depreciation of the national currency.

Iran’s top monetary decision-making body decided to raise interest on one-year maturity deposits by 1 percentage point to 16%. Likewise, interest on two-year deposits was set at 18%. For short-term deposits with 3-month maturity, the rate increased by 2 percentage points to 12%. MCC approved 14% interest for six-month deposits, up 3 percentage points.

Low interest rates have undermined the people’s enthusiasm to park their money in banks as the national currency tanks and galloping inflation eats away at their rainy-day savings.

Data on Rade.ir, a website that scrutinizes returns in financial markets, shows that some banks are offering higher interest rates of up to 20% on big long-term deposits.

Observers say so long as inflation keeps climbing and returns on stocks, gold and forex far outpace what the banks offer, the subtle increase in interest rates would be irrelevant and do little to attract the attention of the people whose life savings are sinking at terrible speed.

A glance at banks' financial statements shows deposits in private banks reached 18,174 trillion rials ($66 billion) by the end of the fiscal year that ended in March -- up 44% on the year before.

Bank Mellat topped the list of non-government lenders in terms of total deposits with 2,529 trillion rials ($9.19 billion) followed by Bank Saderat and Ayandeh Bank.

Mellat took in 1,034 trillion rials ($3.76b) in deposits. ENbank (Eghtesad Novin Bank) posted the highest annual growth in deposits -- 100% year-on-year. Sarmayeh Bank was at the tail end with 10 trillion rials ($36.3 million).

Interbank rates

Interbank rates declined to the week ending Dec 8 from 20.94% to 20.31%, the Central Bank of Iran reported.

Rates have been of the ascending order since late August rising from 18.29% and now are the highest since the beginning of the fiscal year in March.

It was 19.9% in late March before declining to 17.95% on July 8, the lowest this year so far. Since then rates have risen sharply. The decline in the first few months was linked largely to liquidity surplus in this key market.

The upsurge in rates apparently speaks of the liquidity crunch while the CBI’s expansionary policy has done little if anything to curb it.

To quench the thirst for liquidity in the interbank market, the CBI has regularly injected funds by implementing open market operations.