Bank governor plans to eliminate loan interest
Sunday, 9 September 2007
Najmeh Bozorgmehrin
IRAN'S new central bank governor, appointed the other day, says he has a plan to eliminate interest rates on loans, in order to encourage "real and genuine" banking services -- a move that left bankers fearful about greater government interference.
Tahmasb Mazaheri, a former finance minister seen as close to Iran's supreme leader, Ayatollah Ali Khamenei, promised to bring banking practices into line with laws against usury.
Mr Mazaheri is also sympathetic to the populist policies of Iran's president, Mahmoud Ahmadi-Nejad, who has promised widely affordable "profit rates" - as interest rates are referred to in Iran's Islamic banking system.
Other former economic officials, however, warned of the potentially disastrous consequences of the plans.
"There is no doubt that the government won't be successful, but such a measure can disrupt the whole economy," said Mohammad Tabibian, a prominent reform-minded economist.
The government raised concerns among bankers and economists when it formed a committee last month to study "revision of banking regulations". The agenda of the 10-member committee, headed by the first vice-president, Parviz Davoudi, remains unclear, although eliminating interest rates could be one of its main motives, economists say.
Mr Ahmadi-Nejad has already called on banks to give cheap loans to people on low incomes. The president clashed with the last central bank governor, Ebrahim Sheibani, over rates. On visits to provincial towns, Mr Ahmadi-Nejad said banks' profit on loans must be slashed to less than the inflation rate, which officially stands at 14 per cent and unofficially may exceed 20 per cent.
In May, he ignored most bankers and imposed rate cuts, from 14 to 12 per cent at state-owned banks, and from 17 to 13 per cent at private-sector banks.
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Under syndication
arrangement with FE
IRAN'S new central bank governor, appointed the other day, says he has a plan to eliminate interest rates on loans, in order to encourage "real and genuine" banking services -- a move that left bankers fearful about greater government interference.
Tahmasb Mazaheri, a former finance minister seen as close to Iran's supreme leader, Ayatollah Ali Khamenei, promised to bring banking practices into line with laws against usury.
Mr Mazaheri is also sympathetic to the populist policies of Iran's president, Mahmoud Ahmadi-Nejad, who has promised widely affordable "profit rates" - as interest rates are referred to in Iran's Islamic banking system.
Other former economic officials, however, warned of the potentially disastrous consequences of the plans.
"There is no doubt that the government won't be successful, but such a measure can disrupt the whole economy," said Mohammad Tabibian, a prominent reform-minded economist.
The government raised concerns among bankers and economists when it formed a committee last month to study "revision of banking regulations". The agenda of the 10-member committee, headed by the first vice-president, Parviz Davoudi, remains unclear, although eliminating interest rates could be one of its main motives, economists say.
Mr Ahmadi-Nejad has already called on banks to give cheap loans to people on low incomes. The president clashed with the last central bank governor, Ebrahim Sheibani, over rates. On visits to provincial towns, Mr Ahmadi-Nejad said banks' profit on loans must be slashed to less than the inflation rate, which officially stands at 14 per cent and unofficially may exceed 20 per cent.
In May, he ignored most bankers and imposed rate cuts, from 14 to 12 per cent at state-owned banks, and from 17 to 13 per cent at private-sector banks.
................................
Under syndication
arrangement with FE