Many state-owned commercial lenders are in an alarming state, as they hold high levels of toxic debt on their balance sheets. The growing amount of overdue loans of some commercial banks is threatening the stability of the banking system, since some are technically insolvent. But, the central bank is trying to find an ordered solution to this critical issue.
Iranian banks’ non-performing loans (NPLs) reached 938 trillion rails ($34.1 billion at official exchange rate) in the month ending November 21, 2014, showing a 16.2 percent increase compared to last fiscal year that ended on March 20, 2014, according to the Central Bank of Iran.
Out of the total sum, the debt held by a series of firms, amounts to 30 trillion rials ($1 billion), CBI’s Deputy Governor Hamid Tehranfar said on Saturday, ISNA reported. “Top 100 debtors are mainly industrial, manufacturing and agricultural firms,” which are unable to pay the massive loans they have received in recent years.
According to the latest data available, the NPL ratio stood at 14.2 percent in the month ending September 22, reducing by 0.6 percent compared to the same month last year. The ratio is at an alarming level as the ratio’s world average for commercial lenders is between three to five percent.
Tehranfar said that the rise in NPLs is due to a decision during the previous administration to force lenders to provide cheap loans for “certain influential customers.” The official, however, refused to identify the customers.
“During the same period legal procedures were not followed and loans were provided regardless of customers’ credit ratings,” he added.
Monetary officials warn that no one is exempt from paying back the loans they have received, though no serious action has been taken in this regard.
“Currently the situation has gone back to normal and a relative discipline has been restored to the banking system,” the official stated, noting that the amount of NPLs have not risen because of new loans provided.
He said clients’ eligibility is now closely looked into and contracts are prepared in such a way that chances of loans mutating into toxic debts is next to nothing.
Tehranfar further said that adding certain articles to the annual budgets in the past also had a counter-effect and increased the amount of NPLs. Since the introduction of three new articles, banks were able to reschedule the due date on loans to make their records more organized and transparent. They would provide debtors with a new loan with which they repaid their previous loans.
