Iran's CB Reports Rise in Loan-Deposit Ratio

The loan-to-deposit ratio rose 1.4% to reach 80.8% indicating a 2.2% increase compared to the same period a year earlier. 

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.

The general LDR ratio has been of the ascending order since March 2018-19 when it was 85.7% before rising again. It declined to 76.5% in the month ending July 21 and has grown steadily ever since. 

Rise in LDR can be attributed to banks’ increasing inclination to lend. By the end of the reviewed month, banks and credit institutions paid 13,959.9 trillion rials ($55.8 billion) in loans to businesses over 10 months since March 2020.  The amount was up by 6,774.5 trillion rials ($27b) or 94.3%, the CBI said. 

However, the ratio was inconsistent across regions. For example, it was 94.8% in Tehran Province and 113.5% in Kohgilouyeh-Boyerahmad Province.

By January 19, total outstanding loans rose 8,540 trillion rials ($34.16b) to reach 26,278.8 trillion rials ($105.11b) up 48.1% compared with the corresponding period a year ago. 

Total loans also rose 35.8% in 10 months since March 2020, which marks the beginning of fiscal year. Reaching 16,763.2 trillion rials ($67.05b), Tehran Province topped the list with the highest number of defaults.

At the bottom end was Kohgilouyeh-Boyerahmad Province with total outstanding loans reaching 89.3 trillion rials ($357.2 million). 

The loan/deposit gap is conspicuous in the pace with which outstanding loans grew compared to deposit growth. 

Data showed deposits grew at slower pace than loans. By the end of the month to January 19 deposits with banks showed 43.7% annual rise to reach 36,163.5 trillion rials ($144.6b). 

Customers had 25,163.41 trillion rials ($100.65 billion) in deposits during the corresponding period last year. Deposits rose 33.1% in the 10 months since March 2020, with 27,162.84 trillion rials ($108.65b).

As usual the majority of deposits were in banks in Tehran Province. Banks in the capital held 19,427.7 trillion rials ($77.71b) in deposits in the mentioned period or more than half the total.

With more than 1,903.7 trillion rials ($7.61b) Isfahan Province was next. Kohgilouyeh-Boyerahmad Province was at the bottom end with 88.6 trillion rials ($354.4m). 

The CBI has often said that one reason for Tehran's top position in both deposits and bad loans is that the sprawling metropolis is home to head offices of most businesses across the country.

This gives rise to a whole lot of financial and banking requirements, including rising demand for loans, credit and other forms of lending.