Banks Lend $40b in 8 Months

EghtesadOnline: Banks and credit institutions paid 5,313 trillion rials ($40.8 billion) in loans in the first eight months of current fiscal year to Nov.21.

News ID: ۷۴۹۲۸۵

25 December 2019

The lending increased by 1,150 trillion rials ($8.8 billion) compared to the similar period last year posting 27.6% growth on year-on-year basis, according to data released on the website of the Central Bank of Iran.

As usual, the majority of loans went to fund working capital of manufactures and businesses. Lenders paid 2,875 trillion rials ($22 billion) to help finance working capital of firm, which accounted for 54% of all lending in the eight months.

Working capital loans increased by 380 trillion rials compared to the same period last year or up 15.3% on an annual basis, according to Financial Tribune.

Businesses active in mines and industries grabbed the lion’s share of the working capital loans with 1,156 trillion rials ($8.8 billion), Financial Tribune reported.

The CBI said despite the rise in lending, measures should be taken to curb the inflationary impact from rising demand for goods and the ensuing liquidity.

Out of 1,623 trillion rials paid to mining and industrial companies, 1,156 trillion rails were allocated to fund working capital or 71% of all loans.

Lenders gave 443 trillion rials to the agro sector, 290 trillion rails for housing and construction, 1,010 trillion rials to the commercial sector and 1,841 trillion rials to services.

Apart from working capital loans, banks gave money to help companies grow, repair and renovate. Homebuyers were also among the loan recipients.

Accordingly, banks granted loans worth 600.7 trillion rials for creating new businesses, 575 trillion rials for development [businesses]”, 152.9 trillion rials for repair and renovation, 655.1 trillion rials for purchasing goods and 172.5 trillion rials in home loans. Lending for miscellaneous purposes amounted to 299.8 trillion rials during the eight-month period.

Bigger Share

The central bank ascribed the bigger share of loans for working capital largely due to the regulator’s concerns about the viability and survivability of manufacturing units struggling due to the challenging economic conditions coupled with the tanking of the rial, higher raw material costs and pressures imposed by the new US economic sanctions.

Financial needs of struggling enterprises and manufactures have gained traction in recent months as the government tries to improve domestic output given the detrimental effects of the unilateral US penalties.

CBI has instructed banks to lend 1,000 trillion rials ($7.6 billion) to productive businesses in the agriculture, housing and construction, industries and mining, petroleum and tourism sectors.

This apparently is other than the loans granted by administrative bodies, namely the National Development Fund of Iran, the country’s sovereign wealth fund.

According to the CBI report, nearly half of the amount is for companies in the industrial and mining sectors.

Businesses in the key farming sector are set to receive 200 trillion rials ($1.6 billion). The same amount will go for housing and construction.

In line with the government’s aim keep industries running, the CBI unveiled a plan in November to streamline policies and procedures for financing manufacturing units, and allow the regulator to optimize management of liquidity injected into distressed manufactures.

The scheme, known as “productive credit certificate” (known also by its Persian equivalent Gam) was approved by The Money and Credit Council - a top body in charge of monetary and banking decisions.

“The plan will pave the way to raise working capital of businesses with the help of guarantees provided by banks and credit institutions, and tapping the capacity of private firms,” the CBI said.