Government-owned and semi-state banks provided 688 trillion rials ($1.4 billion) in collateral-free loans to 1.9 million individuals from February 2022 to June 2023.
As per Economy Ministry rules, the two groups can borrow up to 1 billion rials, based on their credit scores. Instead of collateral, workers should present their salary certificate for loans up to 500 million rials. For loans above this amount they should submit a check or promissory note, Tasnim News Agency reported.
Bank Sepah was in the lead with 176.9 trillion rials ($361 million) to an estimated 630,000 applicants, accounting for 21% of the total.
Mehr Iran Qarz-ul-Hasanah Bank ranked next with 129 trillion rials ($263m) to 430,000 applicants, followed by Tejarat Bank with 99 trillion rials ($202m) to 141,000 applicants, Refah Bank with 78 trillion rials ($159m) lent to 376,000 applicants and Bank Melli with 68 trillion rials ($138.7m) to 107,000 applicants.
The ministry says the facilities have helped play a significant role in supporting individuals and businesses during challenging economic times.
However, the program has unleashed strong criticism from academia and prominent economists against the government for overloading lenders with risky mandates that add to the myriad of problems of the struggling banking industry not unfamiliar with mismanagement and poor performance and lack of transparency...
In response the ministry says banks are not supposed to allocate extra funds for such needs and should “draw on their available resources but under new lending arrangements.”
No Clear Criteria
Despite the ministry’s emphasis on credibility assessment before granting loans, there is no clear-cut criteria for such appraisal.
Earlier the Central Bank of Iran said that the basis for credibility assessment could vary and include factors like the borrower’s financial track record, including past loans, borrowers’ check transaction performance and even their record in paying traffic fines and utility bills.
Under the credibility assessments announced earlier by the CBI, banks must limit access of unruly customers even if they put up proper collateral but failed to repay debts on time in the past.
The regulator has introduced a platform for online inquiries on credibility status at mycredit.ir website. The platform keeps data on 44 million IDs and provides information on 34 million bank customers.
Later, the secretary of Private Banks and Credit Institution Association said collateralization is crucial for giving loans and banks are not required to lend without collateral.
"Banks need to ensure that borrowers are able [and willing] to repay on time…credit ratings simply cannot be accepted as a security for loans," Mohammad Reza Jamshidi was quoted as saying by IBENA.
Credit rating usually is a factor only for assessing applicants, Jamshidi said. "However, a bank may decide to lend without demanding collateral from applicants with reasonable credit scores."
Pile of NPLs
A recent report by the semi-official news agency ISNA shows that state-owned commercial lenders are the leading source of large non-performing loans.
The CBI recently obliged banks to regularly publish the names of big defaulters in the hope that it would help recover the billions in NPLs that have eroded banks’ lending ability and capacity.
Publicizing the name of big defaulters is backed by law that now obliges lenders across the board to update the list of borrowers on a quarterly basis.
Latest update in the list of major defaulters on the CBI website shows that seven banks have collectively disbursed a total of 1,179 trillion rials ($2.04 billion) in large loans categorized as non-performing loans.
Among these banks Bank Sepah is the first followed by Parsian Bank. The Cooperatives Development Bank holds the lowest amount of NPLs.
CBI says the ratio of non-performing loans to total lending improved by the end of the first half of the previous fiscal year (March-Sept. 2022).
The ratio of NPLs to total loans stood at 7.8% by the end of H1 – down 14.7% from the corresponding period last year. Total NPL ratio, however, increased by 27.9% in the course of six months since the beginning of the fiscal year that ended in March.
NPL ratio is the ratio of the amount of nonperforming loans in the loan portfolio of banks to the total amount of outstanding loans. It measures the ability of a bank in getting repaid for the loans.
The ratio in the report relates to both rial and forex loans. Data show that a big segment of the NPLs is in foreign currency.
In terms of the total NPL, Bank Sepah and the Bank of Industry and Mine (BIM) collectively accounted for the than 56% of the total during the last fiscal year.
According to IRNA, the state-owned Bank Sepah solely accounted for 30.6% of the total bad debts, followed by BIM with 25.9% and Bank Saderat 8.2%. The Export development Bank of Iran, Bank Keshavarzi (agro bank) and Parsian Bank ranked next.
