Economy, Business And Markets
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Banks Get Poor Marks From Majlis

Banks Get Poor Marks From Majlis
Banks Get Poor Marks From Majlis

The Parliament (Majlis) Research Center conducted a survey this week to reveal why the country’s banking system is unable to recover its overdue loans even when there is collateral provided by the debtors.

The center says the delays in payments during the past few years have shrunk bank resources and made the financial institutions unable to provide credit for customers and manufacturers.

The study says in the absence of a national credit reference check on the debtors guarantees, creditors find it difficult to precisely evaluate the value of each guarantee.

This means the lenders have given loans without correctly assessing credit risk -- risk that a borrower will default by failing to make necessary payments.

Another reason given by the study is that banks have no cross communication network to have customers’ data checked, so they cannot know for sure if their clients have a good credit rating or not.

In some cases, the debtors even threaten to declare bankruptcy if the loaning bank puts pressure on the individual client. A bankruptcy filing would mean that the bank would only retrieve a portion of the sum owed to it. Thus, the lender would have to report a loss, something which bank managers are avoiding.

Based on the recent report by the research center, by-laws placed restrictions on banks, such as the law enacted in 2000, which prohibited banks to ask for property or estate as the guarantee for the loans. The lack of proper guarantees makes it tougher for banks to put pressure on the debtors.

The report further says some of the credits are paid to certain individuals through pressure and political influence. This is another aspect of the critical situation the banks are facing. The corruption within government and commercial banking system has also exacerbated the problem. The credit the banks provide under outside influence, are not properly evaluated and in most cases lead to a default. Furthermore, it is nearly impossible to call on a loan, when the debtor is well connected.

The data on debtors and their qualifications are mainly provided by the debtors themselves and there is usually no supervision on the accuracy of the data, the study suggests. A lack of