Central Bank of Iran data indicates that the percentage of banks’ outstanding loans to deposits declined again in the calendar month to January 20.
The loan to deposit ratio (LDR) stood at 78.6% during the period, down 2% compared to the corresponding period in 2019.
The figure also shows 2.7% decline during a 10-month period (March 2019- January 2020), according to the monthly report published on the CBI website.
LDR is used to assess a bank's liquidity by comparing 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 it is too low, the bank may not be earning as much as it should be.
Despite CBI recommendations to banks and credit institutions to balance the ratio, data of the past two years shows overall LDR has been of the descending order.
Published figures say the ratio was 85.7 in fiscal 2018-19. This shows that it has declined near 7 points compared with the LDR figure at the present report.
The CBI said the LDR was not consistent across all parts in the country of 83 million people. For example, the ratio went as high as 93% in Tehran Province during the month. But it was around 38% in Bushehr Province, 47% in Alborz, 57% in Sistan-Baluchestan, 49% in Fars and 53% in Isfahan.
Such inconsistencies in lending and deposits compelled the regulator to oblige provincial lenders balance their loans with deposits.
Last month the CBI instructed banks and credit institutions to increase their loan to deposit ratio in each province by at least 50%.
"Banks’ total loans in every province should correspond with at least half their total deposits."
The central bank referred to reports from its provincial officials, saying that lenders’ performance indicates considerable imbalances between loans paid and deposits, especially in the poor and underdeveloped regions.
Outstanding Loans
According to the CBI, total outstanding loans reached 17,738 trillion rials by January 20, up 3,370 trillion rials ($110.8 billion) or 23.5% compared to the same period a year earlier.
Tehran Province topped the list with the highest number of processed loans -- 11,316.5 trillion rials ($70 billion).
Isfahan Province with 650 trillion rials ($4 billion) was second followed by Khorasan Razavi Province where lenders reported 553 trillion rials ($3.45 billion) worth of outstanding loans.
Regions with lowest outstanding loans were Kohgilouyeh-Boyerahmad Province with 64.66 trillion rials followed by Ilam Province and South Khorasan Province, with 74 trillion rials and 77 trillion rials, respectively.
Deposits with banks and credit institutions amounted to 25,163.4 trillion rials ($157.2 billion) in the month to January 20.
Bank deposits increased by 5,302.6 trillion rials ($33 billion) over the course of one year to post 26.7% annual growth.
As usual, banks in Tehran Province absorbed the majority of deposits. A total of 13,448.7 trillion rials ($84 billion) in deposits were in Tehran banks or 53.48% of the total.
The lowest deposits were in Kohgilouyeh-Boyerahmad Province where banks held 64.7 trillion rials.
The fact that head offices of most businesses across the country are located in the sprawling and densely populated Tehran Province explains Tehran's top slot in both deposits and outstanding loans
“This calls for a whole lot of financial and banking requirements, including rising demand for loans, credit and other forms of lending,” the CBI said.
