Lack of funds in commercial banks has made them reluctant and unable to undertake the newly-introduced mortgage package by the Money and Credit Council that sought to stimulate the struggling housing market, an expert said.
“Banks need to balance cost of money with interest rates they would offer on home loans,” said Abdolnaser Hemmati, head of the Coordination Council of Banks.
The MCC, the highest policymaking body of the Central Bank of Iran, agreed May 19 that non-first-time buyers would receive a maximum 600 million rials ($20,000 at official exchange rate) 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 ($17,000 or $14,000), respectively. Yet, no commercial bank has taken any step in this regard.
Hemmati believes that if banks adhere to the deposit rate ceiling set by the council, that is 20% for one-year deposits, that would lower their cost of financing to a large extent, ISNA quoted him as saying on Sunday.
Therefore, as the new package urged banks to provide loans for house construction and purchase respectively at 24% and 21% interest rates, lenders would benefit from granting such loans as long as they have sufficient internal resources, he added.
“However, currently most of the banks are dealing with bad loans, a problem that has forced them to borrow from the CBI. They are obliged to repay the debt to the regulator at 34% interest rate, a process that makes the grant of mortgage loans seem an inefficient policy.”
The official rejected the claim that high installments of 600-million-rial loans would exacerbate banks’ non-performing loans problem since the bank holds the property title deed as collateral.
“The property value exceeds the loan’s value, eliminating risk of turning them into toxic loans.”
Hassan Motamedi, CEO of Bank Eghtesad Novin, said banks cannot afford to pay loans that the stimulus package envisions.
“Banks would prioritize clearing their debt to the central bank, then take initiatives to grant new loans,” Eghtesad News website quoted him as saying on Saturday.
He blamed low interest rates set for purchase mortgages (21%) by the council for being below the banks’ cost of financing, which discourages private lenders from providing these loans even if they owe no money to the central bank.
“That’s the reason why private banks have not taken any steps in this regard for years,” he underlined.
Motamedi predicted that the present credit crunch, high demand for other kinds of loans and banks’ depleting capital due to large amounts of NPLs and government debts have undermined banks’ incentive to offer home loans. He urged authorities to come up with plans to help banks raise capital and improve lending.
While the government’s debt to banks rose 29.5% to 980 trillion rials ($35 billion) during the 11 months to Feb. 19, bad loans amount to 940 trillion rials ($32.8 billion), central bank data show. The dangerously high amounts have called the solvency of some banks into question and eroded their ability to lend, threatening the stability of the banking system.
