Economy Minister Ehsan Khandouzi has raised concerns over the issue of enforcing provincial equity in lending banking facilities.
In a letter addressed to the Central Bank of Iran, Khandouzi highlighted the government's unease regarding the disparity in the distribution of banking resources among private banks across different provinces, IBENA reported.
“This situation is prevalent in most provinces. For example, in the province of Bushehr, the ratio of loans to deposits in state-owned banks is 83%, whereas it is 3-6% in some private banks … Thus, it can be interpreted that 97% of the people's deposits in Bushehr Province are being channeled outside the province toward projects in more prosperous regions,” he said.
Khandouzi pointed out that in Kermanshah Province, the ratio of facilities to deposits in state-owned banks is 96%, although some non-governmental banks invest less than 13% of their deposits in the province. He highlighted the situation in the provinces of Kohgilouyeh-Boyerahmad, East Azarbaijan and Chaharmahal-Bakhtiari, where two non-governmental banks invested 4.5-5% of the people's deposits in their respective provinces.
“It is necessary for the Central Bank of Iran to take measures to rectify this inequality in the allocation of facilities through its policies,” he said.
The minister stressed that CBI has set the minimum ratio of facilities to deposit at 50%.
“Accordingly, banks are required to allocate their deposits to local projects and provide micro loans to the public. However, banks, especially non-governmental ones, deviate significantly from this approved ratio of 50% set by the Central Bank of Iran,” he said.
Khandouzi called for setting a deadline for compliance with the 50% standard: “If banks fail to adhere to it, the Central Bank should have the authority to restrict the development of branches of non-compliant banks. This will ensure that the flow of funds and banking facilities is balanced and accessible to all provinces.”
“A more forceful approach would require the CBI to issue regulations and directives. However, even at this stage, if branches of non-compliant banks are temporarily closed, it will have the necessary deterrent effect to induce behavioral changes in these banks,” he said.
Disappointing Data
Economy Ministry’s data show banks have been far from upholding the business ethic of observing equality in their lending practices.
Data published by the ministry’s news portal, Shada.ir, indicate loan-to-deposit ratio (LDR) of specialized lenders owned by the government was the highest and private banks underperformed in accepting requests for loans.
The ratio is used to assess a bank's liquidity by comparing total loans to total deposits for a specific period and is expressed in percentage.
High LDRs mean that 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.
The loan to deposit ratio (LDR) declined in nine months to Dec. 22 by 82.4%, which was 0.3 percentage points lower than the beginning of the fiscal year last March at 83%, the Central Bank of Iran reported on its website.
The ratio was 1 percentage points higher from the same period of last year. 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.
The CBI, however, noted that LDR was not consistent across provinces. In Tehran Province, it was 91.4% and in Kohgilouyeh-Boyerahmad Province 110.9.
Consecutive declines in LDR either indicate a bank’s unwillingness to lend or restrictions imposed by CBI.
Earlier, the Economy Ministry announced that the regulator had imposed limits on lending by dysfunctional banks. The limits were described as corrective policy to tame weak banks plus a cautionary move by the regulator to curb the unbridled issuance of money by troubled lenders.
In a press release seen on its website, the ministry said outstanding loans increased by 12.1% in the first half of the current fiscal year (ended Sept. 22).
Outstanding loans (performing and non-performing) exceeded 46,343 trillion rials ($114.14 billion) -- up 32.7% year-on-year, it said. During the same period of last year, total outstanding loans were in the region of 37,175 trillion rials ($91.5 billion).
Again, Tehran Province topped the list with the highest number of loans, crossing 28,930 trillion rials ($71.2 billion). As for deposits, data show 66,480 trillion rials ($162.7 billion) were held by banks and credit institutions in the month to Dec. 22.
Total deposits increased by 31.5% during the same period of last year. The figure grew by 20.2% during the first eight months of the fiscal year.
MRC Report
The Majlis Research Center (MRC) has singled out banks and credit institutions for special criticism for what it said is their poor performance in extending loans for marriage and child birth in the first eight months of the last fiscal year (ended March 20, 2023).
A study published on the website of the influential think tank showed 46% of marriage loan applicants managed to get the money, which figure was 66% during the same period of last year.
Marriage loans are interest-free repayable in seven years. Couples can apply up to two years after the pronouncement of their marriage.
The government doubled marriage loans for this year.
Banks gave 738 trillion rials ($2.71 billion) in marriage loans to 533,377 applicants in the said period. This is while the study says 1.115 underprivileged individuals had applied for the marriage loans.
West Azarbaijan Province recorded the worst lending performance in this category, as only 36% of the applicants received the money. MRC said banks in this province have made the “process of assessing loan requests more complicated as they interview couples and conduct local enquiries about the authenticity of marriage”.
The report also reviewed age groups, based on which lenders gave applicants of ages 50 years and above 1,109 trillion rials in marriage loans. The Central Bank of Iran says those in this age bracket are not eligible for such loans.
According to the rare study, there was a huge age gap between couples tying the knot. Almost half the women who took out loans were 23 or younger, while 64% of men were above 25 years.
The think tank proposed a revision of methods for checking the authenticity of marriage contracts.
