The Central Bank of Iran announced on Monday that commercial banks are allowed to engage in mass building projects if they use savings, rather than their internal resources, to fund them.

The regulator laid emphasis on the fact that the banks� activities in this regard have nothing to do with their speculative activities, widely denounced in recent months by officials, Tasnim News Agency reported.

Hamid Tehranfar, the CBI�s deputy governor, stated in a televised program on May 17 that banks� participation in the housing projects is �favorable as long as they raise funds through deposits,� a move that he believes can help boost the housing market.

The official said that the CBI imposes limitations on banks using their �internal resources� to fund the projects, arguing that the move could have inflationary pressures. �To urge banks to adhere to the regulations, the CBI would tighten supervision over their activities,� he warned.

However, a real-estate expert disagrees with the recent decision, saying that any involvement of banks in the housing sector is �forbidden,� referring to recent parliamentary approvals that prohibit financial institutions from getting involved in non-banking activities.

Farhad Beizai, however, agrees that if internal resources of banks are used for the projects, inflation will increase. So he called on the regulator to entirely prohibit banks from funding construction projects via their internal resources.

By Financial Tribune