Central Bank of Iran bans forced loan collateralization

The Central Bank of Iran has announced new regulations following a ruling by the General Board of the Administrative Justice Court regarding loan disbursements. Banks and non-bank credit institutions are now prohibited from blocking portions of granted loans or forcing borrowers to open and collateralize cash accounts as a condition for receiving credit.

However, the ruling allows for the use of cash deposits as collateral if the borrower voluntarily offers them within the framework of the 2001 law regarding real estate collateral. In such cases, the cash collateral must be held in a time-deposit account, and banks are required to pay interest rates equivalent to standard deposits for that period.

Failure to pay the appropriate interest rate on these collateralized deposits will be considered a violation, subjecting the offending institution to supervisory actions by the Central Bank. This decision modifies a previous directive that had prohibited the use of any deposits as cash collateral for loans.