Economy, Business And Markets

$34b in NPLs Attributed to 600 Individuals, Companies

$34b in NPLs Attributed to  600 Individuals, Companies$34b in NPLs Attributed to  600 Individuals, Companies

A banking consultant with Iran Chamber of Commerce has attributed half of Iranian banks’ non-performing loans (NPLs) to just 600 individuals and companies.

Mohammad-Mehdi Raeiszadeh said a quarter of NPLs relates to small and middle sized enterprises, arguing that the right policy seems to support such firms to help them revive financially and utilize their capacity since he believes these firms have great potential to create jobs and boost growth, ISNA reported on Tuesday.

Based on previous statistics released by the Central Bank of Iran (CBI), toxic loans amount to 938 trillion rails ($34.1 billion at official exchange rate). The dangerously high amount of bad loans – mostly held by state-owned banks – has called the solvency of these financial institutions into question, and dried up their lending capacity, threatening the stability of the banking system.

Earlier the CBI’s deputy governor, Hamid Tehranfar, said the rise in NPLs is due to a decision during the previous administration to force lenders to provide cheap loans regardless of customers’ credit ratings.

Raeiszadeh also touched upon the recent decision by the Money and Credit Council on interest rates, saying that the two percentage point cut was a wise move. He believes the deposit and lending rates had to be adjusted with inflation, which decreased from once 40% to 15.5% in the twelve months to April 20.

He said 2% decline in deposit rate ceiling (from 22% to 20%) wouldn’t weaken the attraction of bank deposits as competitive markets like the equity market and those of gold and foreign exchange are unstable.

Many experts believe as the deposit rate ceiling is still above the inflation rate, people are reluctant to invest in markets other than banks. Raeiszadeh supported the idea of further decline in lending rate, which is currently at 24% after the MCC cut it from 27-28%. “But a further decline would create rent-seeking as long as bad debts are not addressed,” the official warned.

He concluded that a revision in the interest rate ceiling will be necessary, if inflation continues to fall and nuclear-related sanctions are lifted. Iran and six world powers (P5+1) are negotiating to limit parts of the Iranian nuclear energy program in exchange for lifting western sanctions.