Big bank loan defaulters have repaid 30% of their arrears, the governor of the Central Bank of Iran said.
He did not provide details or name names of creditor banks or the companies in default. It was not immediately known whether the debtors had agreed to some form of settlement with debt collectors or the banks had recovered the debts in full.
Speaking to reporters on the sidelines of the weekly Cabinet meeting Wednesday, Abdolnasser Hemmati said 11 major debtors owe 900 trillion rials ($3.6 billion).
"These people were among the big fish who refused to settle their debts for years", Hemmati said, adding that the issue is being pursued diligently in cooperation with the judiciary, IRIB news website reported.
The age old problem of big loan defaulters is long said to be the biggest challenge of Iran’s ailing banking system. It has hurt the balance sheets of banks and forced many to stop lending despite the chronic need of businesses to borrow as Covid-19 ravages production and the consumer market while recession takes a heavy toll.
Some defaulters tend to hide behind the guise of entrepreneurs to boldly avoid or delay their financial commitments, arguing that repayment of debts means closure and laying off workers.
Hemmati said that the big debtors own several companies. However, bad debts are much higher and not limited to the 11 topping the list. Latest data published by the CBI indicate that total non-performing loans of banks and credit institutions amounted to 2,130 trillion rials ($8.5b) at the end of the first quarter of current fiscal year (March 20-June 21), up 19.5% compared to the previous quarter.
NPL ratio was 12.7% in Q1 or 1 percentage point higher than the previous quarter. NPL ratio, is the ratio of the amount of nonperforming loans in a bank's loan portfolio to the total amount of its outstanding loans. The ratio measures the effectiveness of a bank in repayment on its loans.
NPL ratio of Iranian banks is high compared to many developing and developed countries where it is mostly in single digits and usually below 5%.
A glance at the NPL ratio of some countries published by World Bank indicates in 2019 it was 2.5% in France, 0.9% in United States, 3.8% Poland and Brazil 3.1%. Turkey, Pakistan and Afghanistan registered NPL ratios of 5%, 8.6% and 8.9% in 2019, respectively.
The shrinking role of Iran’s banking sector in funding the struggling economy with their limited resources has seemingly contributed to the high NPLs.
Earlier in the month, the government extended the repayment deadline for troubled loans of manufacturers until the current fiscal year ends (March 2021) to mitigate the impact of the killer Covid pandemic on businesses.
The loan restructuring is for natural persons whose arrears don't exceed 5 billion rials and for legal entity debtors with maximum arrears of 20 billion rials.
