Today.Az » World news » CBI directive on investment units aimed at preventing harmful bank race
14 November 2017 [10:38] - Today.Az
A recent directive by the Central Bank of Iran (CBI) which prohibits banks to sell investment units is aimed at stopping a harmful competition between banks in the country, an expert says.
Recently, the CBI prohibited banks from selling investment units of investment banks. Accordingly, people will only be able to buy the units either directly from the investment funds or brokers. Previously, all banks in the country were able to sell them.
"This directive was designed and implemented to ensure more assets for the banks so that they would not enter a race of higher interest rates in a distraught attempt to lure money," Alireza Kadiver, the CEO of Novin Investment Fund told Trend November 12.
"The newly adopted policy is part of a package that aimed at lowering interest rates and is an agreements between the CBI and the Securities and Exchange Organization in order to ensure banks can stay bound to the CBI-designated interest ceiling," Kadivar said.
In September the CBI ordered that banks should stay bound to a 15-percent deposit interest rate ceiling. This brought interests down from between 18 and 23 percent.
The high interest rates were a trophy of the Ahmadinejad administration. Toward the end of his administration, inflation rate in Iran stood above 40 percent. Ahmadinejad’s successor, Hassan Rouhani, brought inflation down to around 7 percent in the course of three years.
"The banks now will probably go on to open deposits for clients. However, this time around the accounts will not be in the name of an investment fund anymore as it used to, but in the name of the client. As a result, there will be no change in the balance of the banks, but the investment funds’ under-management assets will severely decline," Kadivar said.
According to Kadivar, another earlier directive obliges the investment funds not to place more than 50 percent of their assets in banks.
"The most impact of the new directive would be for fix-income funds, whose under-management assets increased hugely over the past years because their units started being offered over bank counters. That was the time when banks started using funds in order to offer higher interest rates in a bid to circumvent a CBI-imposed ceiling."
Kadivar added, "The fact of the matter is that the economy of Iran and the common people are bank-oriented. People know only banks and investment funds are Greek to them. Also, there is no branch of an investment fund or brokerage any place outside the capital Tehran, while you have bank branches everywhere. So accessibility is another factor."