Why Iranian credit institutions fail to observe interest rate limits?
Baku, Azerbaijan, Nov. 24
By Khalid Kazimov – Trend:
It appears that a recent decision by Iranian bankers to cut interest rates on banking loans and deposits has failed to reach its objectives as a group of authorized finance and credit institutions reportedly refuse to observe the terms of the agreement.
This is while Iran’s Money and Credit Council (MCC) back in June cut down banking interest rates on loans made to borrowers from 22 percent to 18 percent. The Money and Credit Council also approved an earlier decision by the country’s bankers to lower the deposit interest rates from 18 percent to 15 percent.
The decision to reduce the interest rates was carried out with an aim to give a boost to the country’s depressed economy followed by the administration’s triumph in lowering inflation rate in the country. When President Hassan Rouhani took office in Aug 2013 the inflation rate was somewhere above 40 percent which dropped to single digits (9.5 percent) for the first time in June.
The decision, however, carried further implications as rumors about financial losses at 14 Iranian banks got around, blamed on lower interest rates.
Over the past decades, keeping money in banking accounts has been considered as a risk-free option for Iranians as there has been no default risk for account holders. Therefore a huge amount of money was held in banking accounts plunging the Islamic Republic deeper into recession.
The lowering banking interest rate was apparently aimed at channeling the stalled capital in bank accounts into parallel markets with an aim to help the country climb out of the recession. Despite the decision which obliges Iranian banks to observe the limits in offering interest rates, a group of authorized finance and credit institutions have purportedly offered 25 percent (10 percent above the agreed limit) in interest rate to deposit account holders.
The outlaw behavior of the finance and credit institutions is apparently aimed at attracting more customers to lure benefits.