The Central Bank of Iran said the ratio of non-performing loans improved in the third quarter of the last fiscal year (Oct. 22-Dec. 21, 2021).
The ratio of NPLs to total loans stood at 7.1% by the end of Q3 – down 16.5% from the corresponding period last year when it was 8.5%.
Total NPL ratio, however, increased by 6% in the course of nine months since the beginning of the year in March 2021.
NPL ratio is the ratio of the amount of nonperforming loans in a loan portfolio of banks to the total amount of outstanding loans the banks hold. It measures the effectiveness of a bank in receiving repayments on its loans.
With total outstanding loans at 37,996.6 trillion rials ($135.7 billion) on Dec. 21 and the NPL ratio at 5.4%, the total of bad loans was put at 2,697 trillion rials ($9.6b) by the end of Q3.
A bank loan is normally classified as nonperforming when payments of principal and interest are 90 days or more past due, or when future payments are not expected to be received in full.
The ratio in the CBI report relates to both rial and forex loans. Data indicate that forex loan defaulters accounted for a bigger segment of total NPL ratio.
The NPL ratio was 13.2% for loans borrowed in foreign currency, posting 5.6% increase over the similar period a year before. However, in nine months since March 2021 the forex NPL rose by a whopping 50%.
For rail loans the ratio was 5.4%, down from 5.8% reported in the July-Sept quarter and declining 27% from the previous year. The rial NPLs dropped 12.9% compared with the figure reported in March 2020.
Forex Defaulters
It appears that the forex loan defaulters failed to meet their commitments due to a combination of factors, namely the prohibitive rise in currency rates, the 2018 US economic blockade and rising production costs.
Forex loans are normally taken from the National Development Fund of Iran for private companies and handled by commercial banks.
Earlier, Alireza Mirmohammad-Sadeqi, the NDFI’s banking and credit deputy, concurred that the main challenge the fund is grappling with is bad debts, particularly forex loans.
“Most of the currency loans are given to forex-generating companies like oil and gas, transportation, power plants, steel manufacturers and water transfer projects,” Mirmohammad-Sadeqi was quoted as saying by the NDFI website.
Overall decline in the growth of bad loans indicates the relative success of the CBI and supervisory bodies in recovering bad debts, he said.
The CBI recently obliged banks and credit institutions to regularly publish the names of big defaulters in the hope that the move will help recover the billions in non-performing loans that have almost devastated the banking sector’s lending ability and capacity.
Publicizing the name of big defaulters is backed by law that now obliges lenders to update the list of borrowers on a quarterly basis.
NPLs of Iranian banks are often higher compared to their peers in the developing and developed world where it is mostly in single digits and usually below 5%.
A look at the NPL ratio of countries published by the World Bank indicates that in 2019 it was 2.5% in France, 0.9% in the US, 3.8% Poland and 3.1% Brazil. Turkey, Pakistan and Afghanistan registered 5%, 8.6% and 8.9%, respectively, in 2019.
