The loan-to-deposit ratio (LDR) to deposit hit a new high in the month ending May 21, indicating banks’ ability and willingness to improve lending.
LDR increased to 81.6%, the highest in the past two and half years based on data seen on the Central Bank of Iran website.
The ratio was 4.6 percentage points higher than the corresponding month in the last fiscal year. The ratio reached its peak at 85.5% in the beginning of 2018-19 and declined to 76.5% in the month to July 22, 2020.
LDR has increased steadily since July 2020, indicating that loans is outpacing deposits. The 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.
High LDRs mean that 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.
As per acceptable norms, the ideal LDR ratio is 80% to 90%. A ratio of 100% means a bank loaned to customers the same amount it received in deposits. It also means the bank will not have enough reserves for contingencies.
While the CBI has not imposed any LDR requirement on banks, monetary and banking experts familiar with the domestic banking system are of the opinion that LDR ratio of 65% would be acceptable given the unhealthy state of the banking industry.
LDR was not consistent across the country in the month to May 21. It was 95.8% in Tehran Province, where the capital is located. The ratio was 108.5% at Kohgilouyeh-Boyerahmad Province.
According to the CBI data, total deposits in banks and credit institutions was 42,093.4 trillion rials ($155.9 billion) by the end of the month to May 21.
Deposits were up 47.3% compared to the same period last year when customers had parked 28,576.8 trillion rials ($105.8b) in banks.
As usual, the majority of deposits were in banks in Tehran Province at 23,338.3 trillion rials ($86.43b), accounting for more than half the total.
Kohgilouyeh-Boyerahmad Province was at the bottom end with 100.3 trillion rials ($371.5 million).
Total outstanding loans, including both performing and non-performing loans, outgrew deposits and rose by 11,072.5 trillion rials ($41b) during a course of year to reach 31,026.2 trillion rials ($114.9b), posting an annualized 55.5% increase.
With 20,481.7 trillion rials ($75.85b), Tehran Province topped the list of provinces with the highest loans paid.
As always Kohgilouyeh-Boyerahmad Province was at the bottom with 96.5 trillion rials ($357.4m) in outstanding loans.
