Banks and credit institutions paid 4976.9 trillion rials ($20.2 billion) in loans to businesses in during the first three months of the current fiscal year that started on March 21.
The lending increased by 2071.7 trillion rials ($8.42b) or 71.3% compared to the same period last year, according to data released by the Central Bank of Iran.
As is the norm, working capital loans topped the list with 3466.4 trillion rials ($14.09b) accounting for 69.6% of the total.
Companies involved in mining and industries were the main recipients of working capital loans at 1269.7 trillion rials ($5.16b) representing 36.6% of total. Part of the growth could be linked to inflation and devaluation of the national currency,
Apart from working capital loans, credit was given for setting up new businesses, expanding existing ones, repair and renovation and to first-time home buyers.
Banks lent 539.5 trillion rials ($2.19b) for setting up new businesses, accounting for 10.8% of the total loans. The services sector received the highest amount of loans paid for creating new businesses.
An estimated 399.2 trillion rials ($1.62b) was paid for expanding businesses or 8% of the total loans given in the three months.
Lenders gave 74.1 trillion rials for repair and renovation and 284.4 trillion rials ($1.15b) for purchasing goods.
Housing loans accounted for only 1.2% of the total lending or 61.7 trillion rials. Bank loans are unable to bridge the gap between potential homebuyers' financial ability and the skyrocketing home prices. The loan amount is negligible compared to the cost of residential units as prices keep on rising rapidly, particularly in the past several years.
In March Bank Maskan, the state housing lender, reduced the interest rate for 5-year mortgage from 9% to 6%.
In terms of overall economic sectors, a big portion of loans went to the services sector with 2,085.1 trillion rials ($8.4b).
Other major recipients were industrial and mining companies with 1,576.1 trillion rials ($6.4b) followed by commercial units at 798.6 trillion rials.
The agriculture and construction sectors, as usual, were at the bottom end. Agribusinesses took out 285 trillion rials loans during the three months. Construction companies borrowed 230.1 trillion rials.
The CBI has often warned against putting pressure on banks for loans and funding the economy stressing the need for enhancing banks' condition, considering the high inflation and increasing demand for credit.
According to the regulator, banks need to increase capital, lower the non-performing loans ratio and employ credit rating methods. It also has called for increasing the role of the capital market in funding businesses.
As per available data, the ratio of non-performing loans to total loans was 8.5% by end of the third quarter of the last fiscal year (Dec. 2020).
To help curb the NPLs the CBI this week announced rules for establishing credit rating firms. Ratings will be decided after assessing the financial performance of the customer within a fixed period plus solvency, ability and willingness to pay.
