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Banking

Decentralizing the banking system

A major obstacle to domestic corporate financing for Iranian companies is the cost of borrowing from the banks, whose lending is largely directed by the government.

According to Arab Banking Corporation's chief representative in Iran, Aziz Farrashi: "The Central Bank of Iran's money and credit council sets the minimum for deposit rates and the maximum for credit rates. Banks are allowed to manoeuvre on the rates within the guidelines." Given the rate of inflation (currently about 15%) nominal rates remain high.

The central bank's director of economic affairs, Mohammed Mahdavian, says the rate for five-year deposits stands at about 17%, dropping to 8% for deposits of three to six months' duration. For now, Farrashi says that lowering deposit rates is out of the question. "The banks have to do something to attract deposits," he says. "No doubt there are strong arguments that depositors will place their deposits with the banks even if deposit rates are lowered, but believe me they will not. There are other possibilities and they will have recourse to them. They are doing it already, and that is why there are relatively few deposits with the banks compared with the potential capability of the savers."

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