Due to chronic inflation and the rising need for bank loans, credit given by banks has increased dramatically in the past decade.
Overall lending increased by almost 9.4 times over ten years, registering an average 27% annual growth, the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) said in a report.
Citing data released by the Central Bank of Iran, the TCCIM’s Economic Research Department said the ratio of credit made available by domestic financial institutions to GDP was the highest in the last fiscal year that ended in March.
Accordingly, the average ratio was 30% in the first half of the last decade, rising to 45% in the second half. It reached its apex in the last fiscal year and amounted to 55.3% of the GDP.
Iran's banks injected more than 18,989.2 trillion rials ($80 billion) into the economy last year -- up 9,239.3 trillion rials ($40b) or 94.8% compared to the year before, marking the highest annual lending in Iran’s banking history.
According to the TCCIM report, the upsurge was due mainly to expansionary policies of the CBI to protect businesses harmed by coronavirus pandemic and mitigate the economic recession.
Despite the shortage of funds, the CBI announced expansionary fiscal policies in April 2020 aimed at propping up businesses by injecting 750 trillion rials ($3.2b) into the economy.
Total lending in fiscal 2010-11 was 200 trillion rials. That was about $16.5 billion as per then conversion rates (1USD=12,000 rials) and would be less than $900 million at today’s exchange rates.
Despite the steady growth in lending in the past decade, the TCCIM said that annual credit lending by banks didn’t register real growth (factoring out inflation) in all the 10 years under review. The real growth in some years was negative.
When adjusted for inflation, annual lending was down in fiscal 2011 and 2012, 2018, 2019 recoding negative growth of 32%, 12%, 0.8% and 4.2%, respectively. Taking inflation into account, the real value of loans was the highest in the last calendar year at 51.5%.
The chamber said decline in real lending growth coincided with first and second round of sanctions imposed by the United States.
New sanctions were imposed the former US president Donald Trump walked away from the landmark 2015 Iran nuclear agreement in 2018. The tough restrictions targeted the key oil, banking, insurance and shipping industries.
Sectoral Breakdown
While almost all economic sectors benefited from loans over the years, the rise was not consistent across sectors. The trade and services sectors logged the highest average growth at 34% and 32%, respectively, in the past decade. Lending to agriculture was up 25% on average. The lowest growth was in the housing sector at 13%.
Lending to mines and industries gained traction in the past three years, reaching an average annual growth of 28%.
As per the CBI report, the mining and industrial sectors took out 5,797.3 trillion rials ($24b) in loans last year representing 30% of the total.
