According to Alireza Baghani, a financial expert who spoke with Ana news website on May 27, the fixed income funds generate an annual return of 23%, while participation bonds and Islamic treasury bills offer even higher rates, up to 25%. Car leasing companies also try to attract part of liquidity by offering 28% interest to those car buyers who pay in advance. Thus, banks that generally face serious challenges in their funding and liquidity management have been involved in an “interest war.”
In addition, banks have had other problems to deal with. As they are not sure how much longer they can survive under the interest burden, they also need to find solutions to deal with their toxic assets, which account for nearly 45% of their total assets. The toxic assets include immovable assets, nonperforming loans and huge government debt.
It seems that the Central Bank has failed to bring interest on deposits to a single digit level. The regulator has pursued the policy for about four years, but it appears that it should give it up, at least for a period. Donya-e Eqtesad said in its June 8 report that the Central Bank of Iran has already decided to keep the rate of interest on deposits unchanged for several months until it can manage the situation.
Although there is no official report available on the final decision of the Money and Credit Council, the prospect of higher inflation in the current year, coupled with the banks already defying the regulator’s interest rate policy, will leave no option for the regulator but to stop further cuts in the interest rate.
In the past six months, the baseline interest offered by banks has gradually increased, according to Donya-e Eqtesad. On average, the state banks offer 3.4% interest on savings accounts above the official 15% ceiling, while private banks and credit institutions offer 5.5% of extra interest. Economists are urging the Central Bank of Iran to get banks to comply with the current restrictions.