Why the banks’ index was red in the summer

According to monetary news, despite experts’ forecasts for more growth of banking symbols than other industries in the summer of 1400 due to compensate for previous backlogs, but changes in the dollar exchange rate, rising interest rates in the interbank market and the downward trend of the overall index and increasing outflows. Haqiqi caused the index to fall.
The total index of the banking industry in the capital market includes the symbol of 11 Ansar banks (merged with Sepah Bank), Saderat, Mellat, Pasargad, Parsian, Post Bank, Tejarat, Middle East, Sina, Karafarin and Eghtesadnovin, but mainly it can be said that Tejarat banks , Saderat and Mellat are the largest companies in this group and the entire capital market.
Many capital market experts believed that the banking group would see high growth this summer due to the ambiguity regarding the results of the presidential election and the coming to power of the new government and the lower growth of this industry than other industries, and compensate for its previous backwardness. Will, but in practice this did not happen.
An examination of the trend of the banking industry index in the capital market shows that on the first day of the summer of 1400, this index was equal to 7,261 units, which decreased to 6,838 units on the last working day of September. Thus, in the summer quarter of this year, the banking group saw a drop of 423 units in its index.
The highest figure recorded for the banking index in the summer of 1400 was related to the sixth of September with 8,198 units and on the sixth day of September. However, overall, the banking index ended the second quarter of this year with a downward trend.
From December 2016 until now, due to the decision of the Monetary and Credit Council to change the formula for calculating interest rates on short-term deposits, the cost of money for banks has decreased significantly and the effects of this decision can be seen in the financial statements of this group. But this issue has gradually lost its effect due to the increase in mandatory facilities, and most of the symbols of this group are faced with high accumulated losses, surplus property, high subsidiaries and negative returns.

1 dollar exchange rate changes
In the summer of this year, the dollar index witnessed a growth of 13.9 percent, so that from 24 thousand and 620 tomans in July to about 28 thousand tomans at the end of September. In July of this year, the dollar was traded at an average of 24,620 tomans, slightly higher than the spring rate, but in August, the exchange rate rose to 27,430 tomans.
Although the dollar exchange rate did not fluctuate much in September and was traded between 27 and 28 thousand tomans, but compared to other financial markets, it had gained more profit for its buyers. Contrary to what has always been the case with the rise of the dollar, the growth of the stock market index and the industries present in it, especially the export industries and banks, did not happen this summer.
By the end of this summer, the central bank had not announced any exchange rates for banks. However, on the 20th of October, he announced that this rate, without change compared to the previous rate, is 15,900 tomans per dollar and 19,000 tomans per euro. It seems that the market had already “smelled” this issue for banking symbols! Because buyers were reluctant to buy bank shares in the summer.

Impact of rising interest rates on the interbank market
Interest rates in the interbank market have always been one of the main factors in the participation rate, especially for legal entities to buy shares.
Last year, with the free fall of the overall index and the loss of thousands of new entrants who had received the stock exchange code at the invitation of the government, many demanded a reduction in interest rates in the interbank market.
The reduction of interest rates in the interbank market is in fact one of the expansionary policies according to which banks help to move liquidity from the economy to the capital market by creating money, and the capital market thrives in the short term.
However, the implementation of this policy, due to high inflation and 45% in the country in the long run, will lead to the formation of a bubble and the loss of investors in the stock market. Something that also happened in the Iranian stock market.
Last year, under pressure from stock market losers, the government systematically cut interest rates in the interbank market without considering unbridled liquidity and budget deficits combined with high inflation, perhaps to boost capital markets in the short term, but within a year. Not only did this not happen later, we are witnessing a steady downward trend in the market.
The point is that since the beginning of 1400, the interest rate trend in this market has been declining, so that in the week leading up to the 17th of July, this rate reached 17.95%, which is the lowest rate since the beginning of this year. However, since then, interest rates in this market have always been rising and have practically become a barrier to the desire of legal entities and banks to buy stocks and the entry of resources into the stock market.
In the week ending October 1, the interest rate in the interbank market reached 19.1 percent, while in the first week of summer this year it was 18.46 percent.
Speed ​​up the process of withdrawing real money
From the beginning of 1400, fears, doubts and worries were high among shareholders. Part of this was about waiting for the outcome of the Barjam talks, which have been controversial since the US presidential election and the election of Democrat Joe Biden to replace Donald Trump.
The most important part, however, was related to Iran’s June presidential election. In the first months of this year, some of the real and legal actors, with caution and walking on canes, or so-called, by selling their shares, had parked their money in anticipation of domestic and international political developments. Barjami negotiations, however, did not succeed in the previous government, and the thirteenth government needed several months to be able to enter into the terms of the negotiations.
The presidential election ended with a decisive victory for the fundamentalist movement and no significant change. Given the election promises, the signal was given to the actors that the government would pursue a policy of supporting the stock market seriously, but the market practically took a different path.
In July and after three months of real money outflow, the market witnessed the entry of more than 1,523 billion tomans of real money, which led to increased transactions and stabilization in the capital market.
But gradually and simultaneously with the downward trend of the total index, we saw the withdrawal of real money from the market, so that in August, 1111 billion tomans and in September, 8 thousand and 239 billion tomans of real money left this market.
In these three months, almost more than eight thousand billion tomans of real money was taken out of the market and mainly attracted to parallel markets, especially the new Ramzar market.

Source – Financial News Issue 29