The ratio of loans to deposits continued to decline in the last calendar month ending July 22, extending a declining order that has lasted for the fourth straight month.
The loan-to-deposit ratio (LDR) declined by 2.3 percentage point from the beginning of fiscal year on March 21 and stood at 80.9%.
It fell 0.5 percentage points on an annualized basis and was down 0.8 percentage points on the preceding month, the Central Bank of Iran said.
LDR is used to assess a bank's liquidity by comparing the total loans to total deposits for a specific period and is expressed in percentage.
If the ratio is too high, the bank may not have enough liquidity to cover unforeseen fund requirements. Conversely, if the ratio is too low, the bank may not be earning as much as it should be.
Consistent declines in LDR is yet another indicator of the aversion of banks to lend, apparently due to restrictions imposed by the CBI on lending of unhealthy banks.
Earlier in the month the Economy Ministry confirmed that the regulator has imposed more limits on lending by a several dysfunctional banks.
In addition, financial statements of several banks and credit institutions on share market indicate most have shunned lending.
Data of eleven banks analyzed by the Economy Ministry suggest that ten reported less than 10% growth in lending in the first four months of current fiscal year (March 21- July 22)
Likewise, local news outlets cited bank customer complaints that some banks had been forced by the CBI to withhold lending.
The CBI in a press release denied the claims, saying that lending restrictions are only for dysfunctional banks and to big loans, reiterating that it does not limit micro loans.
However, for years the common people and SMEs have complained that getting small loans from banks has almost always been a gargantuan task while billions in credit/loans is easy to get for those with the “right connections” and without putting up proper collateral.
The CBI restrictions are described as both a punitive policy to punish bad banks and a cautionary strategy taken by the regulator to curb unbridled issuance of money by unhealthy banks.
The CBI said the LDR was not consistent across provinces. For example, the ratio for Tehran and Kohgilouyeh-Boyerahmad Provinces was 90.4% and 110.2%, respectively.
Outstanding Loans
According to CBI data, total outstanding loans (non-performing and performing) reached 43,623.3 trillion rials ($150.4 billion) by the end of the fourth month of the current fiscal year – up 34% on the corresponding period last year.
Since the end of last fiscal year, total outstanding loans registered 5.3% rise.
With 26,406.6 trillion rials ($91.05 billion), Tehran Province topped the list with the highest value of loans. At the bottom end was Kohgilouyeh-Boyerahmad Province with total outstanding loans at 161.8 trillion rials ($557.9 million).
Deposits with banks and credit institutions showed 35.3% annual rise at 59,941.1 trillion rials ($206.7 billion) in the period.
Customers had 44,314.89 trillion rials ($152.8 billion) in deposits during the corresponding period last year. Deposits rose 8.4% from the end of the last fiscal year.
