Page 32 - bne IntelliNews Country Report: Iran Dec17

The banks, meanwhile, are fretting about plans to push down interest rates. As in 2013, some may refuse to make the move, fearing it might trigger bank runs and a total collapse in savings.
Iran’s mortgage market is another huge headache. It doesn’t meet the needs of contemporary Iranians in the slightest. The weak demand for property in the past few years demonstrates this. Tehran is thought to have half a million vacant properties. Builders and sellers are unwilling to drop asking prices which buyers can’t deal with due to the lack of available credit. Property owners would rather hold on to their assets in the hope that banking reform might eventually unlock lending liquidity.
During his re-election campaign, Rouhani released a set of “developmental economic policies”. The 68-year-old Rouhani says the banking sector’s deficiencies are to be partly addressed by promoting the CBI’s supervisory role, improving government fiscal discipline, bringing forward appropriate monetary policies and improving the business climate for lenders.
Reforming the banking sector to the point that it can be reconnected to the world financial system will require making Iranian banks adhere to the Basel III international capital adequacy standards, provide real transparency and regulatory compliance and introduce a regulated approach to their loan facilities.
8.1.1 Loans
CBI pushing for loan-friendly banking
Banks lending rises 18.4% in fourth-month period from March
Iranian regulators seem likely to force banks to lower interest rates in coming months in line with the re-elected Rouhani administration’s plan to switch the banking system from savings-based to loan-friendly. Pressure for such a move is thought to have mounted following a meeting of Central Bank of Iran (CBI), Money and Credit Council (MCC), government and private bank representatives.
Peyman Ghorbani, CBI Vice Governor for Economic Affairs, said that commercial loans must be set from 18 to 19% from September 2. Loans were locked at 20% and above before the proposal to cut rates.
As it is, the banks are struggling with the current rates forced on them by the CBI as their business plans were previously based on high-interest savings accounts.
The lowering of interest rates is also set to come into direct conflict with the upgraded capital adequacy ratio lately outlined by the CBI. Banks that do not meet the ratio are at risk of losing their licence, the central bank says.
Iranian banks doled out IRR1.53qn ($40.2bn) as credits across the economy in the first four months of the current year, up 18.4% y/y, according to a press release from the Central Bank of Iran (CBI) on August 21.
Following months of overhauls of lending measures in the country, along with added capital from restructuring banks portfolios, loans are finally beginning to grow again in the country.
‘Working capital’ had the biggest proportion of the loans in the first four months
32 IRAN Country Report November 2017 www.intellinews.com