Economy, Business And Markets

Sign of Hope and Change

Finance Desk
Sign of Hope and Change
Sign of Hope and Change

If the recent saga of woes crashing upon banks has had any hidden benefit for them, it should be the lessons they were taught in fair lending. After banks splurged the better portion of their loans on powerful and big-name companies, now the trend shows that lenders are developing a taste lending to small businesses. Private lenders, it seems, are leading the change of heart.

In recent days, banks' press releases and official announcements are replete with messages that augur well for business lending. Bank Mellat, — which boasts the title of the biggest private bank in Iran — announced last week that in the two years ending June 2015, it had offered 24.5 trillion rails ($800million at the official exchange rate) in interest-free loans alone.

A big portion of the loans, the lender claimed, had gone to charitable projects or to create jobs for those covered by entitlement programs. The lender has also participated in the construction of 11 schools in underdeveloped areas from revenues generated from interest-free accounts in the past year (ended March 20).  

 Mellat has also stood out by being the only bank to effectively reduce its non-performing loans (NPLs) during the past year, according to the CEO of Tarh Andisheh Behsaz Mellat Co. – a company which assists banks in retrieving bad debt. While the ratio between NPLs and the loans given in most other Iranian banks is above 10% (in some cases surging as high as 17-18%), Mellat is the only lender with a ratio of 7.2%.

Esmail Lalehgani, CEO of Bank Saderat recently talked about his bank's readiness to "fulfill its responsibilities" to keep the wheels of manufacturing greased with loans. He said his bank is willing to offer financial counseling or finance manufacturing and entrepreneurial ventures.

"With regard to the banking system's special role in the economy, we are willing to help entrepreneurs and help lift domestic production," he was quoted as saying.

Less Attractive

Bank Day is another private lender to jump on the lending bandwagon. A senior official at the bank said last week that Day considers interest-free lending a "social responsibility."

Akbar Abbasi Maleki regretted the fact that galloping inflation has pushed people further away from interest-free practices and called for concrete steps to revive the virtue. He announced Bank Day's interest-free assets had trebled in the past year and said the practice could be lucrative like all other economic enterprises.

Parsian Bank, another private lender, announced this week that it has plans to offer loans worth 5 trillion rials ($167 million) to small businesses. Its CEO, Kourosh Parvizian said his bank is willing to cooperate with institutions like the State Welfare Organization to help protect vulnerable families.

Government-affiliated lenders are also waking up to the lending trend but still trail behind—both in lending and deposit attraction. On Monday, Ali Saleh Abadi, CEO of Export Development Bank of Iran announced renewed efforts by his bank to ease the lending process. "To ease exports, there is need to expedite the lending process and attract customers," he said.  

Banks are grappling with a host of problems—mostly a fruit of their own irresponsible behavior in the past but their about-face in caring about their average customers could be taken as a sign that they are ready to have a fresh start.