Central Bank Chief Warns About Tricks of 'Bankrupt Financial Institutions'

The Governor of the Central Bank of Iran warned that some 'bankrupt' banks and financial institutions are offering higher interest rates than others to 'buy time'. In a television interview on Friday night, April 19, Valiollah Seif urged the public not to be deceived by the high-interest rates of certain banks and credit institutions. According to Mr. Seif, banks and institutions that offer higher returns are 'bankrupt entities' trying to 'buy time'. He emphasized that 'high interest is the cost of the risk that the depositor has accepted'. Iran is one of the few countries in the world that offers more than 20% annual interest on term deposits. In most developed and industrialized countries, the interest rate on bank deposits ranges from 1% to 3%. For a long period during Mahmoud Ahmadinejad's presidency, the bank interest rate was set below the established inflation rate, a situation referred to by experts as 'financial repression'. However, experts state that with the reduction of the inflation rate from over 40% to below 10%, conditions have been created for lowering bank interest rates. Previously, economic expert Ahmad Alavi wrote in a note on Radio Farda that the Iranian banking system is currently engaging in unhealthy competition to expand its share of the credit and banking market, keeping deposit interest rates high despite the decrease in inflation. Meanwhile, ISNA reported on April 4 under the title 'Banks' Resistance to Lowering Interest Rates' that despite an agreement among banks to lower interest rates, 'banks are still displaying rates above the approved 21% and attracting resources'. This news agency identified unauthorized credit institutions as one of the factors contributing to the increase in bank interest rates, emphasizing that these institutions have attracted bank customers by offering exorbitant returns. According to this report, even regular banks have been forced to engage in destructive competition to maintain resources, proposing interest rates deviating from the approved regulations. The Research Center of the Parliament described the state of the Iranian banking system as 'crisis-ridden' and warned of the 'risk of bankruptcy' for the country's banks. According to this center, out of 7,333 financial institutions in the country, only 1,000 have licenses, and between 1972 and 2011, the volume of banking activities by non-bank financial institutions has nearly tripled. The Research Center also reported that six 'unauthorized' credit institutions hold about 133 trillion tomans, which is about 6% of the total assets of both authorized and unauthorized banking systems.