Economy, Business And Markets

Auto Loan Capacity Reaches Limit

Auto Loan Capacity Reaches Limit Auto Loan Capacity Reaches Limit

The Central Bank of Iran has sent a notice to automakers and dealers, asking them to watch for the limited number of car loans available.

In a letter to the Ministry of Industries, Mine and Trade posted on its website on Saturday, the CBI reminded auto industry officials that the total amount set for  auto loan scheme can cover no more than 110,000 vehicles.

The auto loan scheme is part of the incentive package unveiled by the government to stimulate the flagging domestic industries, among which the half-century-old car industry has been hit the hardest due to a host of reasons, namely mismanagement, high prices and low quality.

In separate messages to the banks offering the loans, the CBI called on them to stop accepting new applications after their loan capacity reached its limit.  

Despite automakers' request for increasing the number of loans, CBI's public relations office made it clear to the banks that current resources did not allow the program to be extended.

"Fortunately, the people welcomed the loan scheme by registering in large numbers within a few days; however, the limit will not be raised considering its negative macroeconomic impact," the letter said without going into details.

Latest reports show that the total number of loan applicants had surpassed 110,000, with the two main carmakers Iran Khordo and Saipa selling 53,000 and 57,800 vehicles respectively within the first six days of the offer.

The news comes as CBI's earlier announcements did not mention a ceiling on the number of loans available; CBI deputy governor, Akbar Komeijani had  ensured the public that the loan scheme  would not face any interruption during its six-month life span.

Bad Loan Concerns

Meanwhile, there are concerns over CBI's ability to repay the new loans to lenders and the possibility that it would be added to CBI's pile of unpaid debts to banks.  

Addressing the issue, Valiolah Seif, the CBI governor, told ILNA there might be delays in settling a small portion of the loans.

However, he said the CBI would take specific measures to prevent delays in repaying banks' debts, without elaborating on how the top bank intends to do so.

CBI total credit for the auto loans amounts to 2.75 trillion rials ($92 million at the official exchange rate).

The auto loan, as a part of the government's incentive package announced on November 18, was set to provide buyers with up to 250 million rials ($8,370) with an interest rate of 16%. The payback period is a maximum seven years or 84 installments.

The CBI is providing the funds to banks, which is to be repaid at 14% interest rate.