In response to the economy minister's recent warning about the poor performance of certain private banks in extending provincial facilities, Secretary of the Association of Private Banks and Credit Institutions Mohammad Reza Jamshidi said some figures about private banks’ lending performance are not accurate as a number of loans extended by them have not been included.
“This issue had been discussed in previous meetings of the Coordinating Council of Private Banks.
These statistics have not considered the fact that many factories and industries in towns received facilities for their working capital, revitalization, or development from bank branches in major cities, especially Tehran,” Jamshidi was quoted as saying by ISNA.
“The loans extended in Tehran Province for the revitalization and development of factories and industries were actually earmarked for provincial industries and projects, and it is possible that this statistic was not included in the report of banks’ provincial offices," he added.
The official noted that it was decided to include the payment of such facilities in the provincial reports of banks.
On the other hand, as some private banks have pointed out, another factor contributing to the low ratio of facilities to deposits in some provinces is that customers in these provinces have not been introduced to private banks for receiving loans related to government initiatives.
Economy Minister Ehsan Khandouzi had 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 of Iran should have the authority to restrict the expansion of branches of non-compliant banks, which will ensure that the flow of funds and banking facilities is balanced and extended 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
The Economy Ministry’s data show banks have not upheld the 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 sufficient 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.
LDR declined in the 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 point higher from the same period of last year. It 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.
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.
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 ending Dec. 22.
Total deposits increased by 31.5% during the same period of last year, which indicate a growth of 20.2% during the first eight months of the fiscal year.
