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Foreclosed Factories Pile Pressure on Banks

Kamal Al-din Pir-Mo’azzenKamal Al-din Pir-Mo’azzen

Iranian banks now own 1,343 foreclosed industrial units, essentially turning them into corporate holdings, IRNA reported.

According to Kamal Al-din Pir-Mo’azzen, a member of Iran Small Industries and Industrial Parks Organization, ownership of these factories were taken over by commercial lenders as their owners failed to repay their debts.

The factories are sinking in red ink and are a major drag on bank balance sheets. Almost all are loss-making companies. Thus, banks cannot sell them nor do they have the expertise to run them.

Iranian lenders turned into holding companies since the 2012-2013 economic crisis, with most of their assets locked in the property market and foreclosures.

Banks were aggressively buying property before 2012 in the belief that property prices always go up, and were lending without proper consideration of risk, in many cases based on recommendations from higher-ups.

The economic crisis forced most borrowers into default and caused property prices to tank, leaving banks cash strapped. The situation has effectively rendered most banks insolvent, though current regulation allows them to limp on. The credit crunch is widely seen as the primary reason behind the long and painful recession in the industrial sector.

The Central Bank of Iran and the government are trying to address the situation without causing major shocks.

 

Financialtribune.com