Demand for Working Capital Loan Surges

EghtesadOnline: During the first month of the new Iranian year to April 20, the lion's share of the banking system's business lending–at 70.7%–went to meet the working capital demands of enterprises.

News ID: ۷۴۱۴۷۸

13 May 2017

In the latest report published on the Central Bank of Iran's official website, which contains data useful to monetary policymakers and analysts, the central bank has detailed the credits doled out by banks in this period.

Data released by CBI show the share of working capital loans has increased by 6% and 8.2% compared with the average of the previous fiscal year (ended March 20) and the corresponding period of last year, respectively.

Industries and mines propped up their sector by allotting 85.3% of their credits to working capital while they received a significant share of all loans offered by banking system to various business sectors, Financial Tribune reported.

The figure of industrial loans stood at 78.3 trillion rials ($2.01 billion), accounting for 35% of all the loans, although the services sector reins supreme with 94.5 trillion rials ($2.52 billion) or 42.2%.

This is while agriculture and housing sectors both bagged about 13.5 trillion rials ($360 million), which account for merely 6% of all the loans.

As cited in the report, the total amount of loans that banks allocated reached 224 trillion rials ($6 billion) during the month to April 20, marking an increase of 11.3 trillion rials ($300 million) or 5.3%, year-on-year.

The report further shows that the average value of each loan that went to the industrial and mining sector was considerably higher than the other sectors, standing at 10.5 billion rials ($280,000). The figure for trade loans, which had the second highest average value, was around 1.15 billion rials ($30,000) while loans allocated loans to agriculture sector were the lowest at 0.46 billion rials ($12,250) during the first month of the Iranian calendar.

In terms of the number of loans doled out during this period, banks extended 164,200 loans to different sectors, such that the services sector again had the biggest share with 84,849 loans.

Agriculture and housing sectors were next in line by receiving 28,929 and 22,394 loans, respectively.

As noted by the bank, care should be taken that the growth in banks’ loan portfolios does not raise inflationary pressure, since demand for credit is particularly high.

Thus, recapitalization of banks, improvement of their efficiency in allocating working capital loans to productive activities, reduction of bad debt and navigation of firms to the capital market are recommended.