The loan-to-deposit ratio (LDR) fell by 3.2 percentage points in the month to May 20 compared with the same month in the last fiscal year, to reach 77%, indicating banks’ increasing aversion to lend.
LDR has declined by 2.4% percentage points in the first two months of current fiscal year (March 20-May 20), according to a report published on the Central Bank of Iran website.
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.
LDR started declining from the beginning of fiscal 2018-19, dropping by more than 8.5 percentage points from the then 85.7%.
The descending order is attributed to lenders’ taking extra caution to lend and their inclination to invest in parallel markets, such as the share market, for fatter profits and less potential risk.
The Persian-language economic newspaper Donya-e-Eqtesad describes the development as one of the ramifications of the negative real interest rates.
“Under persistent inflation in consumer prices and in light of the relatively low lending rates and appeal of other asset markets, it seems understandable that commercial banks engage in activities other than lending,” the newspaper said.
As per the CBI report LDR, ratio for Tehran and Kohgilouyeh-Boyerahmad Provinces was 90.5% and 107.6%, respectively.
Customers had 28,576.8 trillion rials ($124.24 billion) in deposits with banks and credit institutions. Deposits rose 7,265.6 trillion rials ($31.59b) in one year to show 34.1% rise on annualized basis.
Deposits increased 5.2% compared to the end of the last fiscal year (March 2019), when it was 27,162.84 trillion rials ($118.1 b).
As usual deposits with banks in Tehran Province accounted for 54.51% of the total. About 15,579.0 trillion rials ($67.73b) in deposits were held with banks in the capital during the period. With almost 1,504.67 trillion rials ($6.54b) worth of deposits, Isfahan Province was next.
At the lowest end were banks in Kohgilouyeh-Boyerahmad Province with 71.4 trillion rials ($310.43m).
Outstanding Loans
Total outstanding loans crossed 19,953.7 trillion rials ($86.75 b) by the end of the month, showing 30% increase compared with the corresponding period last year.
From the end of the last fiscal year, total outstanding loans rose 597.9 trillion rials ($2.6b), or 3.1%.
With more than 12,913 trillion rials ($56.14b), Tehran Province topped the list with the highest number of defaults.
At the bottom end of the list was Kohgilouyeh-Boyerahmad Province with total outstanding loans reaching 68.7 trillion rials ($298.7m).
