Outstanding loans in Iran’s banking system outpaced deposits in the month ending Nov. 20, making the gap between paid loans and banking deposits to grow for the fourth month in a row.
That is evident from the relatively significant increase in loan to deposit ratio (LDR) during the month, according to latest data released by the Central Bank of Iran.
LDR rose to 81.3%, 2.5 percentage point higher than the figure reported in the same month of last year. It was also 1.9% higher compared with the beginning of the current fiscal year (March, 20).
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.
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.
According to the CBI report, the ratio was not consistent across the country. For example, it was 95.6% in Tehran Province and 112% in Kohgilouyeh-Boyerahmad Province.
The general LDR ratio was of an ascending order since the fiscal 2018-19 when it stood at 85.7 before rising again. It declined to 76.5 in the month ending July 21 and has grown steadily ever since.
Surge in Lending
The new trend could be attributed to lenders’ increasing inclination to lend. Banks and credit institutions gave 12,199.4 trillion rials ($48.7 billion) in loans to economic sectors in the first nine months of the current fiscal year (March 20-Dec. 20, 2020).
Compared with loans in the first three quarters of the previous year, the figure increased by 5,936.7 trillion rials ($23.7 billion) or a whopping 94.8%.
The nearly double lending could also be ascribed to expansionary monetary policies adopted by CBI to inject money into the economy to mitigate the devastating impact of the coronavirus.
CBI was instructed by the government last April to help businesses impacted by the deadly plague. The government had approved 750 trillion rials ($3 billion) in financial aid, of which 500 trillion rials were in the form of loans to SMEs and the remaining to needy families in the form of interest-free micro credit.
The loan/deposit gap is also noticeable in the pace with which the outstanding loans grew compared with the pace of deposit growth.
Total outstanding loans crossed 25,137.7 trillion rials ($104.7 billion) by Nov. 21, showing a 29.9% increase compared with the corresponding period of last year.
In the first eight months of the current fiscal year, total outstanding loans rose by 5,781.9 trillion rials ($23.1 billion), or 46.8%.
With more than 16,180 trillion rials ($67.4 billion), Tehran Province accounted for the highest value of outstanding loans.
At the bottom of the list was Kohgilouyeh-Boyerahmad Province with total outstanding loans reaching 84.3 trillion rials ($351 million).
Total bank deposits increased by 41.6% on an annualized basis to reach 34,323.5 trillion rials ($137.3 billion). Deposits increased by 26.4%, 7,160.6 trillion rials ($28.6 billion) in the first eight months of the current fiscal year
As usual, deposits with banks in Tehran Province accounted for slightly less than half the total. About 18,572.9 trillion rials ($74.3 billion) in deposits were held with banks in the capital during the period. At the lowest end were banks in Kohgilouyeh-Boyerahmad Province with 84.8 trillion rials ($ 340 million).
According to CBI, one of the main reasons for Tehran's top slot in both deposits and paid loans is that the densely-populated metropolis is home to the head offices of most businesses across the country. This gives rise to financial and banking activity, including rising demand for loans, credit and other forms of lending.
