Given the rising non-performing loans Iranian banks have been struggling with in recent years, an official with the Ministry of Justice has come up with an idea that could help prevent bad debts from increasing.
Mohammad Keshvarian Moqaddam, the ministry’s expert on economic and trade affairs, has suggested that banks can make use of ministry’s monetary specialists who may help them more precisely evaluate profitability of investment projects and eligibility of loan applicants.
According to the central bank’s latest statistics, bad debts amount to 920 trillion rials ($31.7 billion at official exchange rate). The 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.
Moqaddam blames banks for having failed to identify economically feasible projects before providing loans, saying “that is the main reason behind the rise of NPLs,” SMT News website reported on Monday.
He divided major bank debtors in two main categories: those who were real businesspeople in the private sector and those who were well connected to circles of power.
“The private sector businesspeople generally failed to repay their debt due to economic woes and worsening business environment,” he said, hoping that the lifting of nuclear-related sanctions would help economy recover.
“Due to banks’ weakness in assessing risks of business plans as well as interference of influential figures, a large amount of banks’ resources have gone to unprofitable projects, worsening the problem of toxic loans over the last couple of years.”
A banking consultant with Iran Chamber of Commerce recently observed that half of Iranian banks’ bad debts are owed by 600 individuals and companies.
Moqaddam said all applications being submitted to banks now are closely assessed to avoid previous mistakes.
“Business plans can be provided by individuals or specialized companies like the Association of Investment Consulting Supervision, but they need to be further reviewed by banks’ credit committees or their trusted institutions, like the Assembly of Banking and Credit Investment Club,” he noted.
“No role has legally been defined for the Justice Ministry to take part in the decision-making process,” he complained. “It’s not enough that projects would be only verified by banks. Ministry’s experts can act as independent specialists who are not influenced by either applicants or lenders.”
Moqaddam referred to the Central Bank Governor Valiollah Seif who had earlier warned that the NPL crisis would not be resolved without judicial intervention, saying the ministry’s engagement in the process could help cut hidden hands from misusing banks’ resources.
