Valiollah Seif unveiled the new monetary, credit and exchange policies of Central Bank for overcoming the stagnation.
Valiollah Seif unveiled the new monetary, credit and exchange policies of Central Bank for overcoming the stagnation. The governor of Central Bank said: "The reduction of inflation is an ongoing process, therefore the structure of banks' interest rates on loans and other facilities will be reviewed and revised and Central Bank will soon present a report to Money and Credit Council to alleviate interest rates."
Seif also unveiled an ambitious rule aimed at clearing the debt of the government and state-owned banks to Central Bank. The new rule requires the government to review the net foreign revenues of the country until the first quarter of 2013 and allocate up to IRR400 billion of revenues to clear the government debts to Central Bank."
Revision of Interest Rates
In a conference on determining the government's economic policies against stagnation, Valiollah Seif proposed Central Bank's new sets of policies including monetary, credit and exchange policies.
Seif stated: "Along with the declining rate of inflation, interest rates on deposits and other bank facilities will be reviewed and regulated."
The governor of Central Bank insisted that monetary policies will no longer be implemented as one-year plans and said: "We are able to present new reports and recommendations to Money and Credit Council and manipulate interest rates. We will soon provide the Council with a series of comprehensive reports in order to make interest rates more flexible."
Seif also said: "Another important reevaluation in monetary policies is fixing the rate of interests across all banks on 13.5 percent. We need to recognize the achievements of Central Bank with regards to curbing the inflation rate. Furthermore, it's important to reduce the inflation rate to 25 percent by the end of the present Iranian calendar year. Although we have set sights on a 25-percent inflation year, we are confident that we can drag down the number and come up with better more satisfactory statistic by the year's end."
Omission of Assigned Loans from the Budget
The governor of Central Bank asserted that credit policies must be targeted and maintained under the general framework of monetary regulations. He divided the outstanding resources of banking system into two groups 'new resources' and 'resources from previous non-performing loans'.
Seif underlined Central Bank's efforts on adopting 'complementary solution' to increase the power of banks in granting loans from IRR2400 billion to IRR2800 billion in 2014. According to Seif, the big gap between the initial and the intended volume will be provided by receiving a large sum of non-performing loans.
The governor of Central Bank stated that IRR1100 billion of the budget will be allocated to strengthening the working capital of production units, while IRR1300 billion will be granted to new loan applicants."
He further stated: "We must allocate more facilities to production units and essential departments. As a result, assigned loans are removed from the country's budget for next year, because these loans comprised a huge proportion of bank resources. With the omission of assigned loans from the budget, the private-sector will benefit from this huge financial resource and production units will definitely be able to perform better next year."
Regarding the credit policies, Seif predicted that the revision of interest rates will encourage banks to finance and strengthen the intermediation of bank fund. Seif accounted different means of improving the ability of banks to grant loans, such as increasing capital adequacy ratio from 4 percent at the moment to 8 percent, reimbursement of the public debt to the banking system and including that in the budget bill for the year 2015, selling of surplus assets and properties of banks, selling of shares and key money within a three-year period, selling portable and stationary assets within a five-year period and banks' obligation to make sure of the reimbursement of at least 25 percent of facilities from the owners of enterprises."
Addressing non-current loans of banks is another important task of Central Bank.
"Unfortunately, it was wrongly assumed in the past that every case on non-performing loan was a result of corruption or offence, while a large proportion of loans arise from economic oscillations," Seif stated. "Banks need to divide non-performing cases and have a meeting with those unable to refund huge loans to explore possible solutions."
Seif further stated: "The Judiciary has been very cooperative with regards to dealing with delinquent debtors and hopefully we will be able to organize non-performing loans based on this framework."
Clearing Debts with Exchange Difference
The governor of Central Bank insisted on stabilizing the exchange market and making preparations for leveling exchange rate and said: "We are trying to maintain exchange rates in grey market 'an acceptable margin'. The most important matter of exchange market at the moment is easy access of economic players to exchange."
On the $22 billion deposit of Central Bank in China, he said: "We need to devise a transparent structure for using deposits to finance construction projects."
Vice President of Central Bank, Akbar Komeijani also noted: "It is agreed to invest three times the deposits in China in finance projects through China's export insurance company."
Valiollah Seif also spoke of the program for clearing the debts of the government and state-owned banks. To that end, Central Bank will be able to allocate up to IRR400 billion of public revenues acquired from the import of goods and services by the first Quarter 0f 2013 for clearing the debts of the government and state-owned banks to Central Bank."
A committee including the governor of Central Bank, the Minister of Economic Affairs and Finance and the delegate of Vice-Presidency for Strategic Planning and Supervision will settle the difference for clearing the debts. According to Seif, the debt of the public-sector to banks has reached IRR800 billion, almost equal to the amount of non-performing loans.