The ratio of bank loans to deposits bucked a rising trend that lasted for six straight months, indicating caution of banks to lend.
Loan-to-deposit ratio (LDR) of banks and credit institutions stood at 81.9% by the end of the second calendar month (finished May 21), down 1.3 percentage points compared to the beginning of the fiscal year in March 21, 2022.
LDR is used to assess a bank's liquidity by comparing the total loans to total deposits for a specific period and is expressed in percentage.
If the ratio is too high, the bank may not have enough liquidity to cover unforeseen fund requirements. Conversely, if the ratio is too low, the bank may not be earning as much as it should be.
Compared to the same month last year, the LDR rose 0.3 percentage point, the Central Bank of Iran said. The ratio climbed to 83.3% in the preceding month after consecutive rises for six months.
Decline in LDR signifies that lenders are taking extra caution before accepting requests for loans and credit. As per acceptable norms, an ideal LDR ratio is typically 80% to 90%. A ratio of 100% means a bank loaned the same amount it received in deposits. It also means that the bank will not have enough reserves for contingencies.
However, due to the weak financial structure of some Iranian banks and low Capital Adequacy Ratios, lenders have been recommended to keep LDR as low as possible.
The ratio for Tehran Province, where the capital is located, was 92.4%. It was 110.9% in the less privileged Kohgilouyeh-Boyerahmad Province.
CBI data show that bank customers had 56,817.1 trillion rials ($183 billion) in deposits by the end of the second calendar month to May 21.
Deposits showed 35% rise on the same period last year when it was 42,093.46 trillion rials ($135.7b). Deposits rose 2.7% from the end of the last fiscal year, when it was 55,314.3 trillion rials ($178b).
More than half of deposits were held in banks in Tehran Province. Lenders in Tehran had 30,739.5 trillion rials ($100b) in deposits during month to May 21.
Isfahan Province was next with 2,905.36 trillion rials ($9.3b) and Kohgilouyeh-Boyerahmad Province at the bottom end with 151.6 trillion rials ($490 million).
Total outstanding loans (performing and non-performing) rose 10,838.4 trillion rials ($34.9b) to 41,864.7 trillion rials ($135b) from the corresponding period last year, up 34.9%.
Total unpaid loans were 1.1% higher from the end of last year.
With 25,888.8 trillion rials ($83b), Tehran topped the list of provinces with the highest number of loan defaults.
At the bottom end was Kohgilouyeh-Boyerahmad Province with total outstanding loans at 149.1 trillion rials ($480m).
