The new orders given to state banks to give microloans to salaried employees without demanding collateral will add to the myriad of problems of the lenders, a banking expert said.
Bahaedin Hosseini-Hashemi questioned the government move as “a mandatory policy that will add to the problems of banks”.
“Opposing the policy, Hosseini-Hashemi noted that banks simply don’t have unlimited resources to be able to lend without collateral. Such a move will lead to a tsunami of loan applicants,” he told the Tehran Chamber of Commerce, Industries, Mines and Agriculture website.
He was criticizing the so-called “collateral-free” lending policy announced last week by the Economy Ministry. Earlier in the week, Ehsan Khandouzi, the economy minister, ordered all banks to accept collateral-free microloan request in a letter to the CEOs of 13 state-owned banks. He instructed the inspection departments of banks to make random visits to branches to make sure that banks are in compliance.
“For the huge number of [potential] applicants eligible for such loans, abundant financial resources are needed. This is while lenders are already struggling with shortage of liquidity.”
Hosseini-Hashemi noted that such a micro-credit lending would do little in improving the economy and macroeconomic indicators, arguing that “this will lead to the waste of scarce bank resources”.
Instead, he said, banks would do better in contributing to the economic growth by pooling their resources and using it for creating jobs, boosting entrepreneurship and domestic production.
He argued that microloans are not enough to enable borrowers to start a small business given the high inflation. “The money would be spent on household expenses.”
The Economy Ministry said pensioners and salaried employees can now borrow up to 1 billion rials from banks without putting up collateral.
Instead of collateral, employees should present their salary certificate for up to 500,000 million rials. For loans above this amount they need to submit a check or promissory note.
The decision is in line with plans by the Central Bank of Iran to promote lending based on customer credibility rather than collateral and/or guarantors when processing loan requests.
On Monday, Ali Nezami, head of Inspection Department of the Economy Ministry warned bank managers who do not comply with the new order.
In a talk with the state TV, he said inspectors had suspended managers of some bank branches who didn’t play by the rules.
Mandatory Lending Censured
Economists and market observes opine that the banking industry is already overburdened with state-mandated obligations to grant loans, warning about the dangerous macroeconomic consequences.
State ad government orders to banks to lend forces them to beg from the CBI, which leads to other monetary challenges, namely unbridled issuance of money and steep rise in monetary base.
Banks have been under renewed pressure as they have to both abide by the mandatory lending and fiscal budget stipulations, and at the same comply with CBI regulations to improve their balance sheets.
As per CBI data, loans given by banks and credit institutions increased 59.5% in the first nine months of current fiscal year (March 21-Dec. 21).
Banks lent 20,195 trillion rials ($74 billion) to businesses in the nine months, which was 7,562 trillion rials ($28b) higher than total lending in the corresponding period last year.
