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Iranian banks on shaky ground

Toxic loans coupled with crippling sanctions have led Iranian banks to be running out of capital, pushing deposit-taking banks to offer higher rates than monetary officials insist on.
EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on leaving the office to report, film or take pictures in Tehran.

A customer buys Iranian gold coins at a currency exchange office in Tehran's business district October 24, 2011. Iranian media reported last week that monetary authorities had reversed a six-month-old decision to cut interest on bank deposits, aiming to mop up excess cash in the economy and halt a dangerous rise of inflation. The news made sense to economists,

More than 30 commercial banks and over a dozen credit institutions are involved in a tight competition to collect billions of dollars in cash, which are in the hands of nearly 80 million Iranians. Previously, the most effective tool the financial institutions used to attract cash from savers was a generous offer of an interest rate of around 27%. That is considered illegal now. Earlier, the Central Bank of Iran (CBI) and CEOs of commercial banks reached an agreement that the institutions should not offer a deposit rate of more than 22%. The agreed ceiling, however, has been violated in many cases.

On Feb. 23, Abbas Kamrei, a board member of Bank Melli, the largest state-run commercial bank, criticized CBI's interest rate policy as incorrect. He said any change in the deposit rate ceiling must be made in such a way that "both markets' stability and savers' trust remain unhurt."

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