Second, other banks keep a portion of a loan as collateral in case of default. This causes the actual interest rate to rise, making loans more expensive. The latter method is widely used in Iran, according to a July report by Fars News Agency. The report indicated that several banks, including Saderat, blocks around 20% of loans as collateral. The percentage goes to 90% in Bank Sina, whose stakes are mainly controlled by conservative Mostazafan and Janbazan Foundation.
Finally, some banks use fixed income funds not only to offer seductive interests to investors but also to circumvent the central bank, as the funds “are not under its direct supervision,” Shahrad Padidar, investment and business development director of Karafarin Investment Group, told Al-Monitor. Fixed income funds have turned out to be widely popular in Iran for the high interest rates they pay. The CBI, however, sees them as “huge parking lots” that have trapped 1.26 quadrillion rials ($38.9 billion) in liquidity.
Padidar told Al-Monitor he believes that the recent efforts by the CBI to regulate banks have targeted exactly this: fixed income funds. The money arriving in the existing 56 fixed income funds is receiving about 20% in interest on average. CBI wants to make banks accountable for the management of the funds, which are directly supervised by the SEO’s auditors.
If the regulator can pressure banks to give up their policy of circumventing interest rate regulations, that would be a great achievement. In that case, the CBI will succeed in efforts to bring billions of trillions of rials into the real economy, helping create jobs and growth. Irrespective of how long it will take the central bank to reach this target, investment risk in the Iranian stock market will remain high in the weeks running to the end of the Iranian year on March 20.
Should the CBI allow the resumption of the trading of Bank Saderat and Bank Tejarat shares on the TSE, the main index could fall to lows not seen since the Jan. 16, 2016 implementation day of the nuclear deal.