Bank Lending Hit by Yearend Strains

Iranian banks’ lending has declined in recent months, said Parsian Bank’s chief executive who is also the head of Iranian Private Banks and Credit Institutions Association.

“Banks’ resources are not sufficient to extend credits at present, which is the result of the increase in demand for cash in the final months of the [Iranian] year,” Fars News Agency also quoted Kourosh Parvizian as saying on Monday.

The Iranian New Year will start on March 21. 

“Currently, banks are paying capital to applicants whose loan application had been approved in previous months,” he added.

The banker noted that banks would resume lending in the coming financial year. 

Pointing to recent government measures for lifting public-sector banks’ capital, Parvizian said it would hopefully increase the lending power of banks in the near future.

Last week, Cabinet members obliged the Ministry of Economic Affairs and Finance to allocate 200 trillion rials ($5.2 billion) of excess funds to increase the government’s capital in state-owned banks.

Officials had previously announced that the new amendments to the budget law of 2016-17 will contain measures to increase banks’ capital assets and settle their debts.

CBI Governor Valiollah Seif had also advocated raising banks’ capital as a strategy to make an exit from the recession and achieve economic growth.

“Shortage of capital is a problem for both private and government-owned banks,” he said.

 Interbank Market

“Resources in the interbank market are also not sufficient for meeting the high demand in the final months of the year. This makes banks limit their spending,” he said.

Parsian Bank’s CEO said interest rates in the interbank market are 18-19% at present, which experienced a short-lived jump, right after the government issued Islamic treasury bills.

Local media last week reported that banks have stopped lending. However, Iranian banks cut back on lending during the final months of the fiscal year.

The Central Bank of Iran’s latest statistics show lenders paid a total of 3,825 billion rials ($99.77 billion) to various business sectors during the nine months to December 20. 

The average lending rate in the interbank market stood at 18.7% from March 20 to September 11. The interbank market funding rate had gradually declined from a record high of 29 % at the beginning of March 2015 to 17% early this year, after CBI started to control banks’ performance.