Economy Minister Ali Tayebnia has warned bad debtors of strict measures if they do not immediately repay their debts to the banking system.
The total amount of non-performing loans (NPLs) is reaching 900 trillion rials ($32.4 billion at official exchange rate), the minister said in a television program on Saturday night. “Most the amount is owed by customers with bad records, who received cheap loans years ago and have no intention of repaying.”
A special committee is tasked with addressing the issue, he said. The panel consists of representatives from the judiciary system, parliament, central bank, regulating and monitoring organizations, as well as the ministry of economy.
“The customers of banks who have bad records shall be distinguished from those struggling to pay their debts but have so far failed due to economic hardships including depreciation of the rial,” he said referring to sharp fall of the rial’s value in 2012.
“The customers who have clean records shall be given special services that would help ease the repayment process. On the other hand, strict measures will be taken against others,” he added.
The judicial system has been asked to create a specialized court that would attend to this issue, and the head of the judicial system “has welcomed the proposition.” With the establishment of specialized courts, cases of bad loans shall be settled sooner, he noted.
To enable commercial banks to provide loans to businesses and individuals, he said the government should pay its debts to the banking system. Additionally, overdue loans must be settled and banks must sell their excess assets to raise capital, he added.
Foreign Exchange
On reports that certain amounts of foreign exchange had been placed in suitcases and transferred outside the country, the minister implicitly defended the move as “necessary” for the country’s economy.
“It is the responsibility of the central bank to manage foreign exchange resources and expenditures in line with the needs of the country,” he said.
Given the sanctions imposed on Iran over its nuclear energy program, the central bank has been doing whatever it can to properly manage foreign exchange resources. “The issue was not a secret nor was it an illegal act,” he added.
Interest Rates
With inflation falling from an unprecedented 40 percent in 2013 to less than 16 percent now, senior banking officials are voicing support for a decrease in deposit rates. The minister however said the central bank is not considering a mandatory measure to cut the rates, which currently range between 10 to 22 percent. “Instead, economic solutions must be put forth,” Tayebnia said.
As the government seeks to sustain its efforts in curbing inflation further, it will by no means encourage printing money to make up for a possible budget deficit, he said, referring to reports that the next year’s budget would face a three percent deficit.
Past experience has proven that by printing money the needed resources for promoting production do not come about, therefore the government intends, instead, to implement more practical measures to raise funds for development projects through increasing interest rates on participatory bonds. The government will also raise revenues through taxation, sale of state-owned companies and spending cuts.
Equity Markets
The government intends to further enhance the capital market, the official said, adding that currently the ratio of total financing done via the capital market versus the banking system is about 30 percent. “The figure is planned to increase to 70 percent,” he announced.
The minister referred to lack of financial resources as a major problem in the capital market.
To solve the issue and in line with the bill for exiting recession, several “productive solutions” have been put forth. Namely, a foreign exchange stability fund will be created; the administration is providing the necessary financing to launch the fund.
Further he said that with the efforts of the administration, the parliament, and general public, the declining trend in inflation can continue until a single digit rate is reached. The minister said with lower inflation the economy could reach eight percent growth in a few years.
