Non-performing loans declined further at the end of last fiscal year (ending March), indicating banks’ progress in recovering bad loans, Central Bank of Iran data show.
The ratio of NPLs to total loans stood at 6.1% as of March 20, marking the end of the last fiscal year. This was 9% down on the corresponding period last year.
Total NPL ratio dropped by 1 percentage point from the previous quarter ending Dec. 21.
NPL ratio is the ratio of the amount of nonperforming loans in a loan portfolio of banks to the total amount of outstanding loans they hold. The ratio measures the effectiveness of a bank in receiving repayments on its loans.
Total outstanding loans (performing and non-performing) reached 41,418.2 trillion rials ($133 billion) by the end of last fiscal year. With NPL ratio at 6.1%, borrowers defaulted on 2,526.5 trillion rials ($8b) in the mentioned period.
A bank loan is normally classified as nonperforming when payments of principal and interest are 90 days or more past due, or when future payments are not expected to be received in full.
The ratio in the report relates to both rial and forex loans. Data show that a big segment of the overall NPLs was in foreign currency.
The NPL ratio was 10.8% for forex loans, posting 22.7% rise compared to the year before.
For rial loans, the ratio was 4.8%, down from 5.8% in the Oct-Dec quarter and dropping 22.6% from the year before.
Resistance to Settle Forex Debt
CBI data clearly states that forex NPLs account for the main section of the unpaid loans. Forex loans are normally taken from the National Development Fund of Iran, the sovereign wealth fund, and are given by commercial banks.
Mounting forex loans/credit has become a hot button topic among private sector borrowers and the NDFI.
The NDFI has long insisted that companies repay the forex loans at present rates. Debtors want to repay at rates when they had borrowed, blaming the several-fold rise in rates and rising production costs that undermined their ability to repay at higher rates.
Most of the pending loans go back several years, when forex rates were much lower than today.
Earlier, Alireza Mirmohammad-Sadeqi, the NDFI banking and credit deputy, concurred that the main challenge facing the fund is the billions in unpaid forex loans.
However, the decline in overall bad loans indicates the relative success of the CBI and other supervisory bodies in recovering bad debts.
High NPL ratios have apparently hurt bank balance sheets and forced them to suspend lending, despite the chronic need of businesses for working capital.
NPLs of Iranian banks are often higher compared to their peers in the developing and developed world where it is mostly in single digits and usually below 5%.
NPL ratios of countries across the globe published by the World Bank show that in 2019 it was 2.5% in France, 0.9% in the US, 3.8% Poland and 3.1% Brazil. Turkey, Pakistan and Afghanistan registered 5%, 8.6% and 8.9%, respectively.
