The Central Bank of Iran has linked big loans to submitting all financial documents, a move that further tightens lending restrictions.
In a directive sent to banks and credit institutions, the CBI has conditioned loans above 50 billion rials ($333,330 as per current exchange rates) to the presentation of audited financial statements.
The measure is part of concerted efforts of the government to reform the dysfunctional banking sector. The move further tightens rules that govern lending, especially to big borrowers many of whom do not have a stellar record.
Accordingly, all legal and natural entities that keep records, as per commercial law, are required to present audited financial books, IBENA reported.
In a similar measure in September, the CBI obliged borrowers to submit credit rating reports from relevant rating companies. Earlier lenders were required to accept rating letters issued only by a CBI-authorized rating company.
A combination of these measures should partly appease serious concerns about some banks’ negligence toward background and credibility checks and their failure to demand sufficient collateral before lending unusually large amounts to tycoons and people linked to high places.
CBI Governor Abdolnasser Hemmati on many occasions had voiced concern over the chaos in the key banking industry and underscored the urgency to repair the balance sheets of banks.
The regulator exercising extra caution to lending is evident in the amount of loan-to-deposit ratio reported by the bank over the past 18 months.
The ratio had been of the descending order since the beginning of the last fiscal year in March 2018 up until November 2019.
LDR was 78.8% on Nov. 21, down from 85.7% in March 2018, indicating banks’ increasing unwillingness and inability to lend.
In the absence of transparency and robust oversight in recent years, some banks reportedly paid hefty loans without proper checks, controls and collateral -- an issue that led to the ever-growing mountain of bad debts and choked off credit to companies in need.
CBI measures to regulate and tighten lending procedures came after an increasing number of big borrowers defaulted and in their wake led to the emergence of sick banks and accumulation of billions of dollars in impaired loans in the past three decades. The strange pattern of lending late came to be known as nepotism and financial corruption.
Non-performing loans are one of the main problems undermining the ailing banking industry and by extension hurting manufactures wanting infusions of cash to improve productivity and raise output.
