Governor of the Central Bank of Iran Abdolnasser Hemmati called on the new vice governor for innovative technologies, Mehran Moharamian, on Thursday to step up efforts for reforms in the flawed bank fee system.
“The vice governor is expected to correct the fee regime, boost supervision over electronic payment companies and promote core banking system,” Hemmati said at a farewell ceremony for the former vice governor Nasser Hakimi.
The idea of rewriting bank service fees has been floating around for years but has so far been in limbo apparently due to the perceived public negative response to rising banking costs, particularly at a time when most households at the lower end of the economic ladder are already saddled with high and rising living costs, Financial Tribune reported.
As per banking rules, lenders are allowed to charge customers proportionate to the total costs of the services they offer. But banks have largely waived the fee over the past decades to compete in the market saturated with banks.
“Each bank transaction costs lenders about 2,000-4,000 rials. This is while currently banks don’t charge their customers for the services they offer,” Mohammad Reza Hosseinzadeh, CEO of Bank Melli Iran was quoted as saying by ISNA.
Hidden Subsidies
Hosseinzadeh described the practice as “hidden subsidies paid by banks to customers”, underscoring the huge cost it imposes on lenders.
By enforcing bank fee reforms, the CEO said, banks revenues will increase, which by extension will boost their capacity to lend.
“To say the least, lenders could be able to cut interest rates on loans to production units. This did not happen simply because their expenses far exceed their revenues,” he said.
At present, banks receiving and making payments bear the bulk of payment fees because when a payment is made with a bank card, the bank receiving the payment has to pay a fee to the bank whose card has been used. This is over and above the charges banks pay as rent and support fees for each POS device to payment service providers.
Furthermore, banks have to pay another fee when submitting transaction orders for paying bills and purchasing phone credit recharges.
Pointing to a CBI bylaw allowing lenders to charge 250 rials for most banking services, Hosseinzadeh said the state-run BMI has forgone fees for its average 70 million transactions every day.
Accepted Norm
According to the senior bank official, bank costs include expenses pertaining to maintaining electronic equipment and the workforce operating them plus costs related to improving IT security against foreign cyber attacks.
Observers say charging fees on bank transactions is an accepted norm in the world, warning that perpetuation of the present policy would put Iranian lenders at risk.
In a talk with the American think tank The Atlantic Council in June, Alireza Lagzaei, deputy head of Bank Mellat, put the amount of fees paid by the banking industry in the previous Iranian year at 80 trillion rials ($700 million).
According to Lagzaei, Iranian banks earn about 5% from fees. This figure rises to 15% at best, but international banks with modern financial structures make up to 55% of their income from such fees.