Economy, Business And Markets

Lending Gains Momentum

Lending Gains MomentumLending Gains Momentum

Lending by commercial banks grew by 16% to 940 trillion rials ($31.3 billion at official market rate) in the first four months of the current Iranian year (started March 21) compared with the similar period of last year.

The latest report by the CBI has shown that lending registered a growing trend over the four months ending to June 22, ISNA reported citing central bank data.

 In the second two months of the current Iranian year, lending increased by 550 trillion rials ($18.3 billion) to a total of 940 trillion rials while in the two earlier months of the year, it was only 350 trillion rials ($11.6 billion). The figure marked a year-on-year increase of 16% from 810 trillion rials ($27 billion) in the previous year.

The regulator planned an ‘’ambitious’’ lending target of 2.8 quadrillion rials to manufacturing sector last year in a bid to boost production and economic growth. The banks, however, went beyond the target figure by 600 trillion rials and lent over 3.4 quadrillion rials ($113.5 billion) to various sectors of the economy, last year. The development prompted the regulator’s warning against the growing debts of the commercial banks to the central bank that could eventually increase inflation.

Taking into account CBI’s officials’ lending forecast for the current Iranian year which grew 20% compared with the previous year, it is expected that the commercial banks will lend about 3.4 quadrillion rials in loans this year. In other words, commercial banks are poised to lend 2.5 quadrillion rials ($83.4 billion) in the coming eight months.

Injecting cash into the manufacturing sector has been on top of the agenda for commercial banks since last year, with 60% of the loans going to that sector.

Recently, the governor of the central bank announced a new financing method had been developed in cooperation with the Ministry of Economy aimed at stimulating consumers’ demand by facilitating the purchase of durable, domestically-manufactured goods in installment. This could also help the manufacturers sell the products stored in their warehouses.

The decision that awaits the final approval of the Money and Credit Council was initially raised in the Budget Law of the current Iranian year, based on which 20 million rials ($667) are envisaged as loan for newlyweds to purchase durable locally-manufactured goods. The idea was hatched as an additional incentive to the 30-million-rial ($1000) marriage loan.