Economy, Business And Markets

Banks to Focus on Services Sector Lending

Banks to Focus on Services Sector Lending  Banks to Focus on Services Sector Lending

Governor of the Central Bank of Iran Valiollah Seif has announced a new shift in lending priorities toward services sector in a move to stimulate sales growth.

Seif, who was addressing a gathering of private and public-sector bankers in the southern port city of Bushehr late Saturday, called on banks to help improve sales growth in sectors ravaged by recession.

"Some falsely assert that services sector is a detached area and even harmful for the economy but the reality is that the task of distributing manufactured goods is shouldered by the services sector," he emphasized.

"Some reports suggest that manufactured goods have remained in factories due to lackluster sales and that is why the banking system plans to allocate loans to the services sector in order to stimulate demand and production."

Seif added that Money and Credit Council—the country's highest monetary policymaking body—will deliberate on the issue at its next meeting to come up with a scheme to help increase demand for manufactured goods.

President Hassan Rouhani's economic team has made business lending a priority despite the liquidity crisis that has hit banks in recent years. Banks' unfolding problems were triggered by their speculative business ventures–especially in the real-estate market and were exacerbated by bad loans and mammoth government borrowing.

Minister of Economic Affairs and Finance Ali Tayyebnia announced plans on Saturday to inject new cash into the banking system in the coming fiscal year (starting March 20, 2016) to help solve the economic woes of the country's industries.

He warned against liquidity pressure on industries and said raising capital for development banks should top the government's list of worries.

Lending Priorities  

Seif said during the previous year (ended March 20), banks lent 3.4 quadrillion rials ($1.1 billion at the official exchange rate) to businesses, 31.5% of which went to the industrial and mining sectors.

"During the past two years, the complexity of the situation brought on by stagflation had made decision-making very difficult and now it should be determined which businesses will have a more positive impact on the economy if we invigorate them through lending," he said.  

The bank's top policymaker took jibes at commercial banks for their speculative activities, saying that banks are business entities and function through the layers of economy which predisposes them to profit-seeking behavior. He said, however, that the regulator would see that lenders do not "overstep the boundaries."

Seif also censured banks for their substandard status in certain areas. He mentioned that while the global reserve requirement for banks is 12%, in Iran it is only 4.5%.

He also expressed concern over hefty non-performing loans, the main reason of which Seif ascribed to "compulsory loans"—loans that banks were forced to pay to certain businesses during the tenure of former president Mahmoud Ahmadinejad.  

Seif attributed CBI's achievements over the past two years to "monetary discipline" and said: "Since the incumbent government took office, we have made it a point to reserve the lending resources for the private sector and not to repeat the mistakes of the former administration to drain the central bank to launch government projects."