CBI keeping tab on banks’ lending rates

The Central Bank of Iran is closely monitoring the interest rate market and cases of rate violations by 11 banks have been submitted to CBI’s disciplinary unit, the bank’s governor said Wednesday.

“We have included a number of proposals in the sixth development (2016-21) plan which increases the CBI’s power to deal with the issue of interest rates,” Valiollah Seif said, adding that the authorized deposit rate is 20% and lending rate is 24%.

He added that the regulator has started checking the banks’ documents related to interest rates to verify the lenders’ honesty. “Interest rates and data recorded by banks may have been manipulated or modified in some cases.”

The CBI chief also mentioned his bank’s active participation in the inter-bank market as a way of regulating interest rates and preparing the way for lowering deposit/lending rates. “We have been able to lower interbank lending rates from 29% to 19% since the start of the fiscal year (ends March 19).”

CAR Woes

He pointed to the issue of capital adequacy ratios saying that the situation is alarming for domestic lenders. “For a number of our banks the CAR is negative while the international standard is 12%.”

Regarding uncertified credit institutions he said his bank was successful to some extent in regulating the unruly lenders. “These institutions have shaky financial structures and take on risks that eventually leads to their insolvency.”

Seif blamed powerful organizations for creating and supporting such unauthorized money institutions saying that they are usually set up in small towns. “The CBI has asked provincial governor generals to identify the newly-founded credit institutions and stop their operations and expansion.”

Regarding the bad loans Seif said the banks realize the criticality of the problem. Lenders have formed committees in their banks to tend to the issue and the committees are active and hold weekly sessions.

Auto Loans

On the issue of auto loans, the senior banker said the loans offered in the government’s stimulus package are aimed at stimulating demand and helping production companies.

“The auto loans have been quite successful and about 96,000 cars were delivered to buyers through the scheme,” he said.
The government released an economic incentive package late last year that included auto loans aimed at helping the embattled car industry. The scheme, however, has been criticized by analysts for its inefficiency and limited scope.

By Financial Tribune