The next fiscal year will be a year of crisis for Iranian banks, Heidar Mostakhdemin Hosseini, a prominent analyst said.
Taking stock of the multiplying non-performing loans of banks he said “50% of the lenders’ assets are locked in the bad debts and soured loans, he told ILNA News Agency.
Recipients of the bad loans include a large variety of groups who are unable to repay their debts for a number of reasons. The first group comprises those who have “invested in the property market” which has been hit by recession for several years, according to the analyst.
“Bank loans are locked in the real estate market which apparently is not showing any sign of recovery. Therefore these customers have defaulted,” Hosseini said.
Another portion of the loans belongs to manufacturers hit hard by excess inventory. Hosseini expressed dismay that manufacturers are not even able to “repay the principal amount, let alone the interest”.
Another factor that makes the problem more complex is that banks have accepted property and homes as collateral from the indebted manufacturers. “The banks are not able to sell the property due to the lingering recession in the property market. As such they cannot reclaim the soured loans.”
Hosseini said other assets are the huge government debts to the banks. A part of the debts are in the form of securities and also guaranteed purchase of agricultural products from Iranian farmers.
“The other part is blocked in the inventories of state-owned plants and factories struggling with lackluster demand, like factories producing cement, steel and ceramics and tiles” to name a few.
In his usual frank and no-nonsense manner, Hosseini pointed to the CBI’s recent report that put total liquidity at an unprecedented nine quadrillion rials ($298.5 billion). However, “only half of this amount is in the market.”
“In light of the aforementioned factors, 50% of the liquidity is locked in non-performing loans.”
This locked assets of banks has lowered inflation Hosseini says. He argued that the declining inflation is not a success story (as the government claims), but rather “disastrous” when the economy is saddled with long bouts of recession.
Hosseini also criticized the Central Bank of Iran for producing what he termed “fuzzy statistics.” He said a report recently released by the regulating body on the health of the economy does not distinguish between new and past loans “which renders accurate analysis impossible.” He said a good part of the lending belongs to the past and called on the CBI to produce data leaning on openness and transparency.
