Where are the costs of borrowing from the interbank market in the financial statements of banks? Indeed, what is the reason for the difference in its registration in the financial statements of banks?
# Hoping for a response from colleagues and managers of the central bank in the channel
As we know, the main function of the interbank market, in addition to being a platform for the implementation of monetary policies, is to create a foundation for lending and borrowing “extra reserves” between banks.
Additional reserves are the reserves that banks use for interbank settlement or lending to individuals or banks, and maximizing its profitability is on the agenda of all banks. Therefore, it can be said that the development and deepening of the interbank market has three important reasons:
1. Improving the liquidity management of banks in the clearing room
2. Reducing overdrafts from the central bank
3. Strengthening the financial power of banks to finance production and investment units
The first and second reasons are to benefit from the settlement of the clearing house, and the borrower bank cannot actually be the lawyer of the deposit lenders.
But the third reason, which is for the development of lending and crediting in the service of production in the economy, acknowledges that the bank that borrows the deposits represents the lenders, and like term deposits, the borrowing bank is the attorney for the depositors.
Reasons one and two on the one hand and reason three on the other hand each have a completely different nature and should be included in the financial statements in a different way.
The same will apply to borrowing from the central bank. If the reason for borrowing from the central bank is to obtain a credit line for lending development, it has a very different nature than borrowing due to overdraft.
According to the authors, if the reason for borrowing deposits (whether in the interbank market or from the central bank) is to expand lending, the interest they pay on the deposits received should be the interest on the paid account and the related deposits should remain as deposits received from individuals. be considered and included in the average deposits that are calculated for attorney’s fee income (the profit is from joint operations)
But if the reason for borrowing deposits (either in the interbank market or from the central bank) is to solve the financial crisis for settlement in the clearing house, a financial expense should be included.
Recently, we came across a new case in the financial statements of one of the main offender banks in the interest rate game, and that is that this bank, contrary to the existing practice in the banking system, in which the cost of borrowing from the interbank market is included in the calculation of interest on account have identified this cost in the financial cost section.
At first glance, this may seem like a clever act to show the interest rate on the account less, but because this bank unfortunately did not perform proper financial mediation and mainly created money out of nothing, it correctly charged the cost of borrowing from the interbank market with It has considered the same nature as borrowing from the central bank (for overdraft) and recorded it in the financial expense sub-section.
In general, it should be accepted that while the country’s economy is in an inflationary recession and the ratio of facilities to deposits is decreasing with such a slope, borrowing from the interbank market is mainly aimed at facilitating the settlement mechanism in the clearinghouse and should be included in the financial cost section. be registered
Hoping for the day when the interbank market will be a place to borrow deposits to increase facilities and credits, instead of supporting the few errant banks that create money from nothing.
Abbas Dadjovi Tavakoli – Ehsan Rakei
@interestratemoney
This post is written by Desdoniva