Toxic debt on commercial banks’ balance sheets is on the rise despite efforts to contain them, says the man who set out to reduce them.
Non-performing loans (NPLs) have risen 2.5 times since the creation of Settlement of Overdue Loans Company (SOLC). SOLC was established in 2008 to tackle the increasing amount of NPLs and its related cases.
The alarming amount of the banking sector’s NPLs is one of the major challenges the sector has faced in the past few years.
“Undoubtedly, the current approach will not only fail to reduce the amount of overdue debt but it is likely to increase it day-by-day,” Saeed Aryanpour, SOLC’s CEO told Banker news website on Thursday.
Research on the root causes of these overdue loans is needed to determine how much of the toxic debt is the result of debtors failing to repay their debts due to Iran’s critical economic situation [over the past few years], and how much has been due to shortcomings in credit validation, securing collateral and collateral rating mechanisms, said the CEO.
“Eliminating multi-billion [rial] NPLs requires a collective national action. It is impossible for a bank to address them on its own,” Aryanpour added.
Despite the consensus between government and lawmakers on reducing toxic debt on commercial banks’ balance sheets, they have continued to rise in the past year. This is disturbing, Aryanpour said.
A loan is considered non-performing when the debtor has fallen behind on its repayments by more than six months. Furthermore, any debt with repayment falling behind by over 18 months must be written off as a loss by the creditor.
