Financial statements of 18 banks and credit institutions listed with the stock market in Tehran show most made profit on loans, outweighing interest paid on deposits.
Interest on loans stood at 2,133.84 trillion rials ($7.9 billion) in the fiscal year that ended in March.
Compared to the year earlier profit from lending increased 42.9%, the semi-official Fars News Agency reported, citing a report seen on the Codal website.
On the flip side, listed banks paid 1,997.33 trillion rials ($7.3b) in interest on deposits last year, indicating 36.6% growth compared to the year earlier.
Data show better financial performance of private and semi-private banks operating in the stock market. The difference of income from lending to interest paid on deposits stood at 135.15 trillion rials ($500 million) last year, up from 30.41 trillion rials ($112m) a year earlier.
As per rules of the Money and Credit Council, Iran’s top monetary decision-making body, interest on one-year maturity deposits is 16%.
Likewise, interest on two-year deposits is 18%. On short-term deposits with 3-month maturity, the rate is 12%. MCC approved 14% interest for six-month deposits.
However, not all banks reported profit.
Out of the 18 banks, six reported that their interest payment exceeded income from loans last year. A year earlier, 10 banks were among the underperformers.
Saman Bank, Sina Bank, Tourism Bank and Eqtesad Novin Bank improved their books. Iran Zamin Bank, Shahr Bank, Ayandeh Bank, Parsian Bank and Bank Day reported that income from lending was lower than interest paid to depositors.
Banks on the Alert
Lenders’ poor performance is the outcome of mounting non-performing loans and uncontrolled lending without appropriate credibility assessments.
The Central Bank of Iran has said it will soon exercise stronger control on banks and credit institutions. The CBI imposes tougher restrictions on banks with poor financial accounts.
The regulator has said it is determined to reform the banking industry long saddled with mismanagement and financial indiscipline.
Measures needed to revive the lethargic banking sector so far include restoring order and discipline to unhealthy banks, getting rid of shadow banks, merging banks affiliated to the military, correcting financial structures plus robust and regular monitoring.
CBI data indicate that the ratio of non-performing loans to total loans by banks declined to 6.7% by end of fiscal 2020-21. The ratio declined by 1.8 percentage points compared with NPL ratio registered for the third quarter of the previous fiscal year ending Dec.20.
NPL ratio is the ratio of the amount of nonperforming loans in a loan portfolio of banks to the total amount of outstanding loans the banks hold. The ratio measures the effectiveness of a bank in receiving repayments on its loans.
NPLs of Iranian banks are often higher compared to their peers in the developing and developed world where it is mostly in single digits and usually below 5%.
