Due to continuous decrease in the inflation rate since 1392(solar year) and attaining a single digit rate, it was expected that the interest rate on bank deposits would decrease as well. However, in contrast to this expectation, bank interest rates not only decreased but followed an increasing trend and in some cases, it rose up to 25-26 percent. After the twelfth Government took the office, the Central Bank of Iran determined the interest rate on deposits at the maximum rate of 15 percent annually. According to Islamic Banking Rules and Regulations, banks are permitted to invest those deposits that were deposited with the bank with the power of attorney from the depositor in profitable projects and at the end of the financial year they must divide the obtained profit from economic activities between the bank and the depositors after deducting the attorney fees and relevant taxes. A portion of the profit that belongs to the depositors is divided into two parts: Profit on account; which according to the contract between the bank and the depositor will be paid in the form of a percentage of initial capital either monthly, annually or at the maturity date. Definite profit; is the profit that the bank has gained in excess to the announced profit at the end of the year and is obliged to divide between depositors. (In fact, definite profit is the realized profit end of period minus the paid on account profit).
Now, whether the 15 percent interest rate on deposits will be realized, depends on environmental as well as internal conditions of the banks which will be examined as follows:
One of the competitor markets for interest on bank deposits has been government treasury bonds and various types of Sukuk which were traded at a high interest rate. Previously, these securities were traded at Iran’s Farabourse market but due to objections from those active in the capital market and the support of the Securities and Exchange Organization, the admission of these securities was halted at the Farabourse. Therefore, due to their outflow from Farabourse and lack of trading transparency, the rate of these securities exceeded 30 percent, and as a result, some of the deposits were guided towards this market.
Fixed income funds in Iran were also successful in attracting large funds. These funds, through bank branches and brokerage firms, were able to receive an amount equal to 1,282,409,181 million Rials (33.5 billion Dollars) from investors. These investment funds offer higher interest rates compared to bank deposits. An important point regarding these funds is the fact that a high percentage of fixed income funds’ portfolios are deposited at the banks. In other words, deposits with small amounts are gathered in these funds and are subsequently deposited in the bank once more. In reality, banks indirectly benefit from these funds for attracting small deposits.
Automotive companies in Iran sell their products in advance. These companies face many difficulties in order to cover liquidity in their company and have very expensive financing and as a result, pay a very high financial cost. This problem leads these companies to do advance sale and are therefore obliged to pay interest to their clients for the time period before handing over the automobile. In some cases, partnership benefit suggested by automakers is a large percentage and exceeds 27 percent. This issue has resulted in large criticism from experts and many of them have compared automakers to financial institutions.
Financial and credit institutions are another serious rival for banks in attracting deposits. Not respecting fundamentals of risk management, these institutions used to attract deposits with high interest rates. Considering the extensiveness and diversity of these institutions and announcing high profit rates for deposits, they were successful in attracting large number of deposits in a way that some of them absorbed more deposits compared to some banks. As mentioned earlier, lack of attention towards fundamentals of risk management and asset-debt management, these institutions faced liquidity deficiency during some periods which resulted in suggesting higher rates to depositors in order to attract liquidity. Eventually, this resulted in crisis for some financial and credit institutions including Mizan, Samen Al Hojaj, Caspian, etc.
Considering the above mentioned cases, in a new instruction the Central Bank of Iran as the monetary policy maker of the country, announced the annual interest rate on deposits to be equal to 15 percent. In this instruction, the on account interest rates for fixed income investment funds has been considered equal to this number and for automakers equal to the above number plus 3 percent. In case the time frame for advance sale is less than one year, this number is determined based on the short-term rate. With this instruction, the policy maker has tried to avoid all escape ways and reach the targeted interest rate on deposits. This measure, together with actions against financial and credit institutions within the past months can lead to a decrease in profits. As mentioned above, the 15 percent interest rate is on account, which means that based on the financial performance of banks, the definite interest rate of deposits can reach a lower level than the above number.