A review of Central Bank activities
In ۲۰۱۳, Central Bank of Iran managed to promote monetary discipline and relatively stabilize asset markets such as foreign exchange by adopting a series of well - adjusted policies. In addition, the banking system managed liquidity, foreign currency reserves and finance more effectively with the help of targeted policy. In this respect, it is worth casting a closer look at some of the major achievements…
In 2013, Central Bank of Iran managed to promote monetary discipline and relatively stabilize asset markets such as foreign exchange by adopting a series of well-adjusted policies. In addition, the banking system managed liquidity, foreign currency reserves and finance more effectively with the help of targeted policy. In this respect, it is worth casting a closer look at some of the major achievements:
1-Modifying Mehr housing project finance methods
As the first step to stop inflationary pressures and macro-economic turbulence and promote monetary discipline, the Central Bank took certain measures to modify inefficient finance methods of Mehr housing project as the main driver of money base growth in the past years. To this end, at the recommendation of Central Bank to Money and Credit Council, the deadline for Maskan (Housing) Bank to repay its debts was extended for 3 years. The decision not only modified the wrong practice of the past but also helped monetary discipline prevail, financing of the project continue and create an enabling environment for balanced distribution of banking resources in different economic sectors.
The administration and Central Bank's commitment to observe monetary and financial discipline as well as stability in asset markets such as foreign currency market reduced inflation from its record high in October 2013 (40.4%) to 23.2% in August 2014. Point-to-point inflation rate of 45.1% in June 2013 also dropped to 14.7% in August 2014 that is an indication of ever decreasing rate in the coming months.
Halting liquidity growth and improving its nature
In 2013, liquidity growth rate stood at 29.1% of which 3.2 unit percent increase is attributed to inclusion of 5 new banks and two credit institutions in statistics. Therefore, the rate is limited to 25.9% with significant decline compared with 30% in 2012. Money base growth also dropped from 27.6% in 2012 to 17.8% in 2013 indicating that the liquidity composition has been purified and the old practice of injecting strong money to the economy has changed. In the meantime, money multiplier ratio increased from 1.9% in 2012 to 9.6% in 2013. Thus, part of the objective to improve liquidity composition and increase share of endogenous factors in boosting the indicator has been achieved.
Stabilizing asset market
Having curbed inflationary expectations and promoted credibility of economic policy makers, relative peace returned to gold, housing and foreign currency market that reduced stockjobbing and agoitage. In this respect, it is worth nothing that average nominal USD exchange rate in unofficial exchange market in 12 months ending August 2014 reached 30889 IRR with 5.7% decline compared with the last year (32754 IRR). In the same period, fluctuations eased and market stabilized to the point where foreign exchange standard deviation decreased by 5.7%. This underlines the significant decline of insecurity in the exchange market transforming it into limited and tolerable fluctuations in 2013.
Regulating money market
CBI invited the banks and authorized credit institutions to participate in efforts to regulate money market in order to ensure the success achieved in granting them the freedom to decide on deposits interest rate and their consequent commitment (under Monetary, Credit and Supervisory Policy Package for Banking System approved in January 2011). In this respect, State Banks Coordination Council, Banks Association and private credit institutions reached agreement on certain interest rates for different types of deposits. In light of possible irrational surge in rates, CBI welcomed their decision and issued a circular obliging all the banks and credit institutions to observe the agreed rates.
Revising key components of monetary policy
The basic components of monetary policies needed to be adjusted to new macro-economic environment as more than two years had elapsed since CBI released a policy package in January 2011 and major economic developments had taken place. Therefore, CBI submitted new proposals to Money and Credit Council to modify banking interest rates and reserve requirement ratio as part of these components. The proposal was later approved with minor adjustments. Reviewing interest rates on banking facilities and reactivating participation papers in banking network are among those new changes.
Improving housing finance methods (Apart from Mehr Housing Project)
Given the strong role of housing sector in driving demand in real economy, CBI re-examined housing finance policies in 2013. As a result, housing-related banking facilities were raised for the following: purchase and construction of house (from prioritized lists) 350 million IRR, for the newly-wed to buy a house 500 million IRR and reward contracts for housing renovation and completion to 100 million IRR as of January 2014. The undertaking partially boosted banking system accountability towards individual retails needs, raised household housing purchase power and paved the ground for non-inflationary boom in housing market.
Boosting domestic production
Restoring stability to macro economy and asset markets as pursued by the 11th administration improved key economic indicators in 2013. The jump in economic growth rate from -6.8% in 2012 to -1.9% in 2013 (based on 2004 as the base year) is a stag-exit emerging sign. In addition, production indicator of large industrial enterprises grew from-9% in 2012 to -4.1% in 2013. In particular, the 2.9% growth in the last season compared with the similar period in the previous year is an economic achievement for non-inflationary stag-exit. The growing trend has been ongoing since then to the point where in the first 3 months of the Iranian year (21 March - 21 June, 2013) auto production raised by 79.8% and it is hoped the same happens in other economic sectors.
Resuming regular update of economic information and statistics:
Given the importance of timely dissemination of statistics in policy-making and decision making for economic actors, CBI focused on publishing regular transparent statistical reports while upgrading calculation methods and extending statistical coverage.
Enriching the quality of published statistics
One of the main achievements of CBI in the area of statistics is updating the base year for national accounts-related calculations from 1997 to 2004 and changing the base year for price and inflation indicator calculations from 2007 to 2011. Although the measure is quite common in light of natural changes in economic structural relations over time, CBI has modified calculation methods, has extended statistical coverage and classification in parallel. Therefore, the new statistics are more in conformity with structural developments and behavioral changes of economic indicator in the real world.
Building efforts to realize resistance economy
Following Supreme Leader's instruction on overall policies for developing resistance economy and subsequent task division among public agencies, CBI set up an executive committee under the supervision of CBI vice-governor, composed of CBI and banking system representatives, for realizing resistance economic policies in banking and monetary areas. The committee is tasked to follow up on the instructed responsibilities regarding resistance economy. In addition, the findings of comprehensive studies on basic theories of resistance economy as well as CBI approaches and duties to realize the sublime goals stipulated therein have been discussed in the meetings of the committee and the conclusions have been referred to Council of Economy. The council is currently working on developing indicators and quantitative analysis of economic areas. It is worthwhile to note that resistance economy doctrine as an instrument to stabilize macro economy, protect economic sustainability and prevent turbulence in asset and mercantile markets has served as a guiding principle for CBI while planning for 2014 priorities and operational activities. However, it should be noted that full success of the objective is subject to persistent conformity and coordination among all policies, strategies and approaches in economic system.
Adopting proper exchange policies
The critical international situation, significance of foreign exchange issues and external part of the economy provoked a set of polices and measures. In this respect, CBI followed these areas: diversifying and expanding brokerage relationships in target countries, facilitating foreign exchange transactions and transfers and releasing assets, financing export, catalyzing credit allocation for basic commodity and medicine imports, improving foreign exchange transfers for public agencies' needs, improving distribution of notes and foreign currencies in the banking system and managing foreign currency portals.
Amending regulations and supervisory mechanisms
The main activities carried out in this regard are as follows:
Drafting unified by-laws for the banks and non-banking credit institutions, reviewing regulations on macro facilities and commitments and reward ceiling for saving deposits, reviving Banks Association, drafting accounting regulations for internal-rial letters of credit, reviewing exchange offices regulations and banking bail bonds, unifying credit contract forms, discharging legal obligations against money-laundering and organizing active institutions in the unaligned market.
Promoting modern technology
As to electronic payment services and infrastructure, real-time gross settlement system (SATNA), clearing house system (PAYA) for processing electronic account-to-account payment orders, banking electronic funds transfer system (SAHAB) for transfer of funds through cards, interbank information transfer network (SHETAB) and electronic card payment system (SHAPARAK) for electronic payment are still facilitating financial transactions and provide electronic banking services to clients.
Major development that had started in 2011 by launching SHAPARAK was more seriously pursued and operational phases of directing internet-based transactions to this system was placed on the agenda.
Moreover, feasibility studies on Check Management System (CHAKAVAK) and electronic securities portals were taken more seriously and in March 2013, pilot implementation of both project started.
2- Banking System KPI
By July 22, 2014, private deposits in the banks and credit institution was 6002.2 billion IRR which shows 32.7% increase compared with the last year (4522.9 billion IRR). During the 12 months ending in July 22, 2014, demand and non-demand deposits respectively increased by 10.8% and 37.4%. In the meantime, long-term deposit accounts grew by 40.3% (equal to 1343.7 billion IRR) and reached 4677.3 billion IRR. The figure revealed 12.8 unit percent growth compared with last year growth of 27.5%. The increase in deposits by private sector, in particular long term ones, indicates that the banks have adopted a correct approach in attracting deposits.
Increasing banking facilities allocated to the private applicants
During the 12 months ending in July 22, 2014, private sector's debts to the banks and credit institutions (without interest and revenue in coming years) increased by 21.5% reaching 4726.3 billion IRR from 3891.4 billion IRR last year.
Increasing banking facilities allocated to different economic sectors
In the period January - April 2014, the banks allocated 807.6 billion IRR to different economic sectors indicating 31.6% growth compared with last year (613.7 billion IRR). In the same period, 49.9% of banking facilities were allocated to productive sector (agriculture, industry and mines, construction and housing). In 2013, 53.9% of total allocations were related to working capital. This indicates that resources have been properly directed at productive activities at a time when the country is grappling to exit stagflation.
Upgrading electronic banking performance
In 2013, the banks issued a total of 277 million cards (debit cards, credit cards, gift cards) growing by 22.7% of which 68% accounted for debit cards (188.3 million cards), 31.2% for gift cards (86.5 million cards) and 0.8% for credit cards (2.2 million cards). In the same period, ATM stations grew by 11.9% compared with the previous year and reached 33.7k stations. ATM terminal in different branches increased by 5.7% and hit 15.6k terminals. The number of POS terminal also reached 3.1 million experiencing 15.6% growth.
Apart from developments in e-payment technology and equipment, electronic transactions also grew significantly in 2013. Compared with 2012, the number and value of all transactions process in the banking network respectively grew by 41.2% and 43.3% and reached 9741 million and 18281 billion IRR. In addition, the number and value of transactions processed through ATMs respectively grew by 2.1% and 56% and accounted for 42% of total transactions in the banking network ranking first. The number of POS transactions also increased by 66.1% compared with he previous year and reached 3910 million with total value of 6177 billion IRR accounting for 33.8% of total transactions. In the same period, the number and value of electronic transactions in ATM terminals respectively grew by 7.1% and 38% reaching 193 million transactions worth 3896 billion IRR. 1544 million transactions worth 526 billion IRR were processed through mobile phones, landlines, kiosks and the internet.