Some state banks have started offering higher interest rates on deposits even though the Central Bank of Iran has not yet approved the increase, media reports in Tehran said Monday.
A report by EcoIran Web TV said some state-owned banks have raised interest by up to 25%. Both state and private banks also are charging between 24%-25% on lending from 18% last week.
The Money and Credit Council (MCC), the top decision-making body of financial and monetary markets is expected to endorse the higher rates. The former CBI chief Ali Salehabadi in the final days of his office late last month had spoken about the possibility of higher rates.
The newly-appointed CBI chief, Mohammad Reza Farzin, has made known that he supports the move to raise deposit rates.
The Executive Board of the Central Bank of Iran recently allowed banks to raise the interest rate on certificates of deposit (CDs) up to 23%.
Data published by Rade, a local website comparing banking services, shows that all banks had been offering CDs at 18%.
CDs provide a fixed interest rate in exchange for the customer agreeing to keep a lump sum untouched for a fixed period. Usually the time limit is one year but if money is withdrawn sooner than agreed interest is cut as a penalty.
The certificates are long term and mature in a year, but the CBI had allowed banks to offer shorter maturities.
Media outlets interpreted the CBI move on CDs as paving the way for the much-debated higher rates. EcoIran Web TV quoted an informed source as saying earlier that the regulator had decided to increase interest on deposits by 5%.
However, banks in the obvious hunt for big money have now gone further raising the rates to 7%.
In mid-2020 the MCC increased interest rates on one-year maturity deposits by 1 percentage point to 16%, on two-year deposits the rate was set at 18%. For short-term deposits with 3-month maturity it was hiked by 2 percentage points to 12%.
Iranian banks have come under increasing censure across the sociopolitical and economic spectrum for their sheer lack of transparency, inefficiency, mismanagement and failure to put public money where the mouth is lending to cash-strapped SMEs and manufactures and underpin production.
However, regarding rates the banks argue that it “must rise in tandem” with the high and rising inflation to make it attractive to savers.
With consumer price inflation galloping at full speed, interest that banks offered up until Sunday (at best) was far less than half the annual inflation and in many cases much lower.
The average goods and services Consumer Price Index in the 12-months ending Nov. 21 increased by 50.2% for the first decile (the lowest income households) and jumped 41.7% for the 10th decile (highest income).
Experts are of the opinion that the conundrum banks are struggling with is thanks to the string of CBI’s failed policies. For example, the regulator ordered banks to charge 18% on long-term loans.
That rate in and of itself was flawed to say the least. Raising interest rates on deposits at this juncture and under such [worsening] economic conditions can imperil lenders, economists have warned.