The number of checks passed by banks declined sharply in the month to April 18, marking the first month of current fiscal year (March) and coinciding with the Persian New Year holiday season and when the coronavirus started hammering domestic businesses.
Checkbook holders wrote 6.1 million checks worth 652 trillion rials ($3.7 billion) during the month, down 36% in number and 56.4% decline in value compared to the month before.
Apart from the virus, the disturbing decline in check payments can be explained in part by the closure of retail business in during the annual holidays.
However, bad checks were expected to also fall in proportion to the overall drawn checks, but recent data from the Central Bank of Iran shows that bounced checks moved in the opposite direction and jumped in number for the second month in a row, again reflecting the economic downturn born out of the deadly disease.
The number of bounced checks stood at 1.11 million, showing 7.4% increase in one month. The default was however down 26% in value compared to the month before. Bounced checks were worth 131 trillion rials ($752.8 million) during the period, according CBI data.
The debilitating effect of Covid-19 on Iranian business is best seen from the percentage of bounced checks to transacted checks.
Bounced checks accounted for 18.3% of the total number and 20% of the value of checks. This is while bad checks represented only 9.8% of total number of drawn checks and 10.8% of their value during the corresponding month last year.
The worsening conditions are largely due to the fast-spreading pandemic that has destroyed livelihoods, manufacturing, and businesses, and thrown economies big and small into the worst recession in several decades.
Large-scale lockdowns to contain the deadly virus have disrupted most retailers and small businesses, forcing them to either shutter, furlough workers or file for bankruptcy.
Conditions in Iran took a turn for the worse after the government ordered a total lockdown on retail trade, namely the key services sector on March 27. The government’s compulsory social distancing scheme led to blanket bans. Many restrictions were in force up until recently.
The government has relaxed restrictive measures allowing many businesses to reopen as new infection cases declined.
Iran has so far identified more than 137,000 coronavirus cases, making it a country hit the hardest by the virus in the Middle East. The virus has claimed more than 7,450 lives, according to the Health Ministry.
Rescue Packages
The government has announced a rescue package to help distressed businesses, part of which covers easing rules on bounced checks.
The CBI earlier said those who issue checks with non-sufficient funds in their accounts and whose checks mature from Feb. 21 to May 20 will be exempt from penalties restricting their access to bank services, such as getting new checkbooks.
The waivers covered restrictions on issuing new checks to control the crisis and avoid further harm to already troubled businesses but excluded other legal penalties, such as court action.
In a similar move, the government offered a rescue package of an estimated 750 trillion rials ($4.2 billion) in loans to help low-income households and struggling retailers.
The aid package was made available for ten business groups that failed to meet their financial commitments as a result the infectious disease.
As per CBI data, bad checks in Tehran Province accounted for 21.5% and 19% of all checks drawn in the capital in terms of volume and value, respectively.
During the period the number of bad checks in the capital reached 379,000 worth 58 trillion rials ($333.3 million).
As usual, the percentage of bad checks to transacted checks was higher in the less-privileged regions. Kurdistan Province was first as the region with the highest ratio of bounced checks to transacted checks at 25.3%. Hormozgan Province was next at 22.8% and the ratio for Ilam was 22.2%.
Likewise, provinces with the lowest ratio were Gilan 13%, Qazvin and Golestan jointly 13.7% and Khorasan Razavi 14.3%.
Banks processed more than 268,000 cashier checks with worth 519 trillion rials ($2.98 billion), indicating 71.3% and 70.7% hike in volume and value, respectively.
More than 74,000 checks worth 308 trillion rials were cashed in Tehran.
