The Central Bank of Iran says banks have managed to improve their lending performance across provinces.
“The loan to deposit ratio [LDR] in banks and credit institutions nationwide had increased from 77% in 2020 to approximately 83.5% by May 22, 2023. The LDR in private banks and credit institutions [taking into account the data related to the central offices of companies located in Tehran] has also increased from 61% in 2020 to around 67.4% at present,” Abouzar Soroush, CBI’s deputy for supervision, was quoted as saying by IBENA.
“Except for Fars and Gilan provinces, all provinces had a performance rate of over 50% by May 2023. In some provinces, such as Bushehr (386%), Ilam (143%), Markazi (156%), Kohgilouyeh-Boyerahmad (275%), Kerman (209%) and Chaharmahal-Bakhtiari (109%), private banks and credit institutions paid more than 100% of the deposits they had attracted in the same province,” he added.
As per the law, banks are required to allocate at least 50% of their deposits to local projects and provide micro loans to the public.
Economy Minister Ehsan Khandouzi had recently 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.
He said that it is necessary for CBI to take measures to rectify this inequality in the allocation of facilities.
“A more forceful approach would require 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 added.
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.
Soroush confirmed that the recently published statistics on bank loans did not take into account the amounts paid in the form of participation contracts.
“These funds should be considered as a type of financing by the banking network … If the sum is added to the recently announced figures, LDR will increase significantly. Some private banks, such as Middle East Bank and Iran-Venezuela Joint Bank, do not have branches in any province. Therefore, their LDR is zero,” he said.
According to Soroush, CBI Governor Mohammad Reza Farzin has sent a letter to the economy minister on Monday, in which he emphasized on the need for the Ministry of Economy to respond, given its shareholding in a number of private banks.
"We expect the ministry to prepare and send a reform plan to the Central Bank, as the bank has been discussing the need for reforms in the structure of private banks with the Ministry of Economy," he said.
Soroush noted that compared to the last fiscal year that ended in March 2023, the number of private banks and credit institutions that failed to meet the threshold in some provinces had decreased.
“Banks and credit institutions in this group, whose ratio of facilities to deposits in those provinces is less than the specified threshold, have been given the necessary warning and instructed to comply with the requirements set by the Central Bank,” he said.
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 percentages.
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.
