Economy, Business And Markets

Banks Given Ultimatum Over Toxic Debts

Banks Given Ultimatum Over Toxic DebtsBanks Given Ultimatum Over Toxic Debts

The governor of the Central Bank of Iran (CBI), Valiollah Seif, said a revised list of top bank debtors is being prepared to be sent to the judiciary system.

Seif added that banks have been urged to provide the CBI with the list of big debtors or else they would be held accountable for any delays obstructing the legal process.

His comments came after the judiciary’s first deputy chief recently slammed the banking officials for failing to manage the debt crisis in recent years, Akhbar Bank news website reported on Thursday.

“The fact is that bad debts have become a big problem for the banking system over the past decade and since banks have absolute freedom in their lending practices they are the ones who should take responsibility for their actions”, Seif said.

However, the banks need assistance from different state bodies including the judiciary system to handle the crisis, he added.

A banking consultant with Iran Chamber of Commerce recently observed that half of Iranian banks’ bad debts or non-performing loans (NPLs) are owed by 600 individuals and companies.

According to CBI figures, toxic loans amount to 938 trillion rails ($34.1 billion at official exchange rate). The dangerously high amount of bad loans – mostly incurred by state-owned banks – has called the solvency of the financial institutions into question, and eroded their ability to lend, threatening the stability of the banking system.

 Enhanced Cooperation

Seif noted that the issue of bad debts has now entered a phase that could not be solved without judicial intervention. “Whatever progress has been made so far to curb the urge for outstanding loans is due to the enhanced collaboration with other bodies and the judiciary in particular.”

Seif added that since the Rouhani administration took office, an executive committee comprised of judicial officials and representatives from several other ministries and organizations has regularly held meetings to address the NPLs.

In addition to pushing banks to take legal action against their debtors, the CBI has devised a list of 20 major debtors for each bank which add up to 575 individuals and firms. “Their debts stand for one-third of the entire debts due to banks”, he said.    

The judiciary has recently agreed to establish specialized courts to hear bad debt cases.

Seif blamed “economic conditions”, “international restrictions”, “runaway inflation” and “currency shocks” of 2011 and 2012 for the massive toxic debts.

“Our economy is bank-based and therefore businesses highly depend on banks to fund their projects”, Seif said. “Banks invested in projects they did not know much about and hence the current predicament”.  

Intro: Bad debts has now entered a phase that could not be solved without judiciary system’s intervention