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Commercial Banks’ Debt to CBI Doubles

Commercial Banks’ Debt to CBI DoublesCommercial Banks’ Debt to CBI Doubles

Non-performing loans, mammoth government debt to banks and capital assets of banks locked up in non-banking ventures are but a few reasons for Iranian banks to resort to lending from the Central Bank of Iran.  

Revealing a 100% increase in banks’ debt to the CBI during the past two months, the latest data indicate that the ongoing saga of debts continues to plague the banking system.

Commercial banks’ debt now stands at 118 quadrillion rials ($4 billion at official exchange rate), ISNA reported Sunday, citing CBI data.

Among the debt-stricken banks, ‘’specialized banks’’ have run up debts five times greater than the commercial banks despite a slight reduction during the previous year. Their racked up debt stands at 556 quadrillion rials ($19billion).  

Analysts believe that specialized banks’ bloated debt has widely to do with Bank Maskan’s funding of Mehr housing project, initiated in 2007 by the former administration. The controversial project was expected to provide two million low-income strata of the society with housing units through free land and cheap credits. But the nationwide scheme slowed down later due to lack of funding.

The current administration is determined to complete Mehr housing project by the end of the next fiscal year (starting March 20, 2017), while 90% of the project are to be completed by the end of this year (March 19, 2016). The housing project has put financial strains on Bank Maskan, the primary housing bank in Iran.

Fars News Agency has claimed that the twofold increase in commercial banks’ debt to the CBI in such a short period has stemmed from increased injection of money into these banks by the CBI in the last two months.

Private banks and credit institutions scored the only significant drop in their debts by marking a 32% decline year-on-year. Their debt now totals 169 quadrillion rials ($5.6 billion). It seems that more heavy-handed regulatory policies by the CBI have finally paid off.

Financialtribune.com