After much heated debate in recent weeks, deposit rate cuts were finally implemented on May 6 but, as forecast by analysts, some banks are reluctant to abide by the new mandate just as readily.

Now that banks are no longer allowed to offer their customers returns as high as 20% for their long-term (one year) deposits, they are trying new loopholes to stay afloat.

IRNA reported on Sunday that commercial banks now ask their customers to opt for certificate of deposits (CD) if high-yield accounts are what they are after.

A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. Only certain commercial banks in Iran have the right to issue these notes, according to the report.

Experts had earlier warned that banks would not be able to embrace the new rate cuts due to the sharp slump in their revenues precipitated by government borrowing in recent years. Nasser Hemmati, the governor of Bank Melli warned last week that unless the government settles its debts with the banks, rate cuts would be good �only on paper�. He told Eghtesad News that a �contradictory policy� in the past years have complicated matters so as to leave the current banking with the existing dilemma.

Banks� recourse to CDs is their latest game plan to keep their depositors from being lured away by other investment prospects. The promissory notes guarantee a 22% return to their customers which is calculated on a daily basis and banks are even willing to rule out any penalty for customers who may want to get their money back anytime they wish.

Dissonance
While it was earlier announced that banks had reached a consensus to set their own interest rates for sight and short-term deposits, the report revealed that there are apparently as many sight deposit rates as there are banks.

For instance, Bank Melli has announced its rate for three-month deposits to be 12%, whereas the private Bank Pasrgad has told its customers that three-month deposits will have a 14% return and Bank Maskan has offered an 18% return for the same deposit.

Bank Tejarat has also adopted a whole new measure, telling its customers that while the rate for one-year deposits is 20%, they can take advantage from the same rate for shorter-term deposits only if they make an investment of roughly 200 million rials ($6000 at market exchange rate) or more, according to the report.

By Financial Tribune