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Banking

Iran: Tehran moves toward an orthodoxy of finance

More flexibility in setting interest rates; Crackdown on non-performing loans

Iran’s central bank has sent local financial institutions a cheerful greeting for the Iranian New Year.

The regulator’s annual policy package, received by banks last month, will allow lenders to pay less interest on deposits and charge more for standard, so-called transaction loans. The loan-price increase comes despite inflation falling, according to the IMF, from about 30% in October 2008 to about 7.5% a year later. However, an economist in Tehran says inflation has been rising slowly again this year.

The consensus is that the regulator’s policies are designed to spur growth, which the IMF says was only 1.5% in 2009, and will be only about 2.2% in 2010 – compared with about 5.6% annually during the years before Lehman Brothers collapsed.

Reduced rates

Reducing rates for standard short-term deposits to 6% from 9% will encourage depositors to put money in longer-term accounts, and in the stock market, according to Ali Mashayekhi, head of research at local investment firm Turquoise. Longer-term deposits enable banks to maintain smaller cash reserves at the central bank.

Privately owned banks have become leaders in giving Islamic-style participation contracts, where individual banks can agree their own rates. Ahmad Taheri, chief executive of privately owned EN Bank, says the prevailing rate for such loans is still about 26%.

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