In the first seven months of the current fiscal (started March 21), liquidity growth and monetary base followed an almost similar downward trend indicating the role of CBI efforts to sustain monetary discipline, Akbar Komijani said in a speech to the Fourth Conference on Islamic Finance held at Alzahra University in north Tehran.
The colossal rise in liquidity has been cited as one reason behind the recent currency crisis that has seen the rial lose 70% of its value in eight months.
He compared Iran’s monetary indices with those of major monetary systems around the world saying that liquidity ratio to financial depth in Iran is 103, which is below that of developed countries despite economic growth in recent years, according to Financial Tribune.
"With respect to the main indices, financial depth ratio and non-governmental sector contribution to GDP is also improving".
The senior CBI official said informal economic activities that are not registered in the GDP records present themselves “more in liquidity rather than those tracked by GDP.”
Touching on the national financial performance in 2017, he said records show the "high fluidity" of liquidity that was curbed by measures such as issuing certificates of deposit at 20% interest that in turn decreased the volume of one-year deposits earlier this year. “The CBI is striving to lower liquidity ratios compared to the previous year.”
According to CBI data released in mid-November, the country's total liquidity was 16.72 quadrillion rials ($122.96 billion) on Sept. 22 which showed a 20.3% rise compared to the same month last year and up 9.3% compared to the end of the previous fiscal in March 2017.
Bank-Based Economy
Despite positive developments in capital markets and their active presence in financing the economy, banks still account for a large portion of financial instruments, which Komijani said has drawn systematic criticism against the performance of the banking sector in its entirety.
The CBI's approach in recent years is inclined toward financing the economy and preventing recession, lending to large enterprises, meeting the financial needs of SMEs and supporting the key housing and agriculture sectors, he told the conferees.
"We believe that proportionate to the nature of their deposits, banks must use them for injecting working capital into large enterprises plus the small and medium ones. We hope the capital market would soon accept the responsibility of funding large enterprises."
Komijani said banks’ lending to different sectors increased from 1.9 quadrillion rials ($17 billion) in 2012 to 6.1 quadrillion rials ($53.38 billion) in 2017. Lending in the first seven months of the current fiscal witnessed a 14.2% increase compared to the corresponding period last year and stood at 3.5 quadrillion rials ($31 billion).
As usual the services sector was at the top of the list with 2.91 million loans worth 1.46 quadrillion rials ($11.15 billion). It was followed by the industry and mines companies that borrowed 993.31 trillion rials ($7.58 billion).