Tehran, Iran, April 18
By Kamyar Eghbalnejad – Trend:
A senior banker has said that the country’s banks face a serious problem in creating balance between their costs and expenses, calling on the Central Bank of Iran to throw support behind the country’s banks.
“The most important problem of Iranian banks in the current situation is the lack of balance between incomes and expenditures,” CEO of Ghavamin Bank Gholamhossein Taqi-Nattaj told Trend.
“Nowadays, the income of the most of the Iranian banks has failed to keep pace with the cost of banks and the interest rates paid on deposits. In my opinion, the lack of balance between income and the costs of the Iranian banks is the most significant shortcoming of the banks,” he added.
Elaborating on possible ways to resolve the current crisis in the Iranian banks, he proposed two solutions.
“The first solution is to cut the interest rates and reduce the costs. The second solution is to step up support from the Central Bank of Iran in order to help the banks to deal with the crisis,” he said.
Debts to banking system
Iran's banking system has been struggling with bad loans in the past few years. Banks of Melli, Parsian, and Tejarat have the highest amount of bad loans in Iran.
The latest data released by Central Bank of Iran (CBI) in April indicates that the Iranian government’s debt to the country’s banking system was on the rise, meanwhile, the debts of the state-run companies have registered decrease in recent months.
According to the CBI, the debts of the Iranian government and state-run companies to the country’s banking system reached 2,588.7 trillion rials (Each USD made 37,700 rials at the time) by Feb. 20.
The figure, which includes debts of the government and state-run companies to the Central Bank of Iran (CBI) as well, is 23.2 percent more than in the same period of last year.
Debt has increased by 17.8 percent in comparison with the beginning of the last fiscal year (March 20, 2017) which had the figure at 2,197.5 trillion rials.
That figure was 1,738.6 trillion rials and 1,683.4 trillion rials in the preceding fiscal years (March 2016 and March 2015 respectively).
Government's debt to the banking system witnessed a rise of 27.2 percent by Feb. 20, while compared to Feb. 20, 2017, and stood at 2,297.5 trillion rials.
Meanwhile, debts of the Iranian state-run companies to the banking system stood at 291.2 trillion rials by Feb. 20, 1.1 percent less, year on year. The figure has decreased by 14.3 percent in comparison with the beginning of the last fiscal year (March 20, 2017).
Meantime, debts of the non-governmental sector to the country’s banking system accounted to 10,461 trillion rials by Feb. 21, indicating a rise of 16.6 percent compared to the preceding year.
The CBI report also indicates that debts of Iranian banks to the Central Bank have reached 1,167.1 trillion rials by Feb. 20, 1.1 percent more, year on year.
Interest rates
The CBI issued its latest directive last August setting a deadline for banks to reduce their deposit interest rates to 15 percent.
The CBI obliged the country’s banks and credit institutions to implement the directive as of September.
Under the directive, banks and credit institutions were obligated to adhere to long- and short-term deposit rates set respectively at 15 percent and 10 percent.
The government also said that the Money and Credit Council, the decision-making body of CBI, was eyeing further cuts of loan rates that currently stand at 18 percent.
However, the most of banks have apparently failed to implement the directives properly and they offered higher interest rates in order to draw funds.
Currency prices
On the other hand, the recent currency crisis has worsened the situation. The Iranian national currency, rial, gave up some 20 percent against the US dollar in two weeks. Many in Iran over the past weeks rushed to hedge against depreciation of their assets amid fears over an imminent collapse of the nuclear deal and the return of economic sanctions.
First Vice-President Eshaq Jahangiri on Monday evening announced the government's decision to unify the country’s official and open market exchange rates.
Jahangiri, after an emergency cabinet meeting, appeared on TV to announce that the price of the US dollar would be 42,000 rials in both markets, and for all business activities.
The decision was made following recent fluctuations in the country after the rial declined to an all-time low and fell to 6,460 by Monday afternoon on the unregulated currency market.
Psychological behavior, growth in demand, getting assets out of the country, political and diplomatic tensions, as well as security concerns and risk of military confrontation, are believed to be among the main reasons behind the sharp plunge of the value of Iran’s national currency.
Back in February, the US dollar for the first time breached 50,000 Iranian rials when police in collaboration with the Central Bank of Iran arrested at least 90 currency traders, whom it blamed for deliberately driving the devaluation in order to profit from it.
The Central Bank sought to stabilize the currency by issuing a bond and temporarily allowed banks to increase rates on deposits in an attempt to draw investors away from the dollar.