Economy, Business And Markets

Banks Unable to Keep Up With New Mortgage Scheme

Banks Unable to Keep Up With New Mortgage Scheme Banks Unable to Keep Up With New Mortgage Scheme

CEO of a private bank has cast doubt on the ability of banks to undertake the new mortgage package, which seeks to stimulate the housing market.

Hassan Motamedi, CEO of Bank Eghtesad-e-Novin, said banks cannot afford to pay loans that the stimulus package envisions.

“The low interest rate of 21% for contracts set by the Money and Credit Council also does not help banks in any way to raise their capital,” Motamedi complained.

He said low rates in the current economic conditions would undermine the banks’ lending power and hence the precariousness of the mortgage plan put forward by the Central Bank of Iran.

The Money and Credit Council, the highest policymaking body of the CBI, agreed May 19 that non-first-time buyers would receive a maximum 600 million rials ($18,000) in loan from any commercial bank in Tehran. If applicants live elsewhere, in the cities categorized as “large” or “other urban areas,” they may receive 500 million or 400 million rials ($15,000 or $12,000), respectively.

Motamedi predicted that due to the present credit crunch crisis and banks’ depleting capital, the increase in home loan ceiling would do little to stimulate the sluggish housing market.

Motamedi said although the government does not owe the private banks directly, since some private banks’ customers have implemented projects for the government and have not been paid yet, the government is indirectly indebted to private banks.

“One of the biggest challenges facing the banks is the issue of toxic debts that have affected their lending power,” he said. Banks that have taken part in the government’s participatory bonds issuance are also among government’s creditors, he added.

According to central bank statistics, bad loans amount to 938 trillion rials ($32.8 billion at official exchange rate). The dangerously high amount of toxic loans, mostly incurred by state-owned banks, has called the solvency of some banks into question and eroded their ability to lend, threatening the stability of the banking system.