Distressed Loans Restructured

EghtesadOnline: The government on Saturday extended the repayment deadline for troubled loans to the current fiscal yearend (March 19), the vice president for economic affairs said.

News ID: ۷۵۱۶۴۲

06 December 2020

Restructuring was proposed by the National Coronavirus Headquarters as part of measures to help manufactures ravaged by Covid-19, said Mohammad Nahavandian.

"The deadline was first extended to the last yearend (March 2020) but many companies were unable to service their debts due to coronavirus outbreak at the time," IRNA quoted Nahavandian as saying.

The decision was made by the Central Bank of Iran and the Majlis Economic Commission. All legal and natural persons in debt now have until the yearend to reimburse their arrears.

The restructuring is for natural persons whose arrears don't exceed 5 billion rials and for legal entity debtors with maximum arrears of 20 billion rials.

"The measure will enable businesses hit by the pandemic to benefit from the loan deferral," CBI Governor Abdolnasser Hemmati said in a press release posted on the CBI website.

To help troubled companies the CBI announced expansionary fiscal policies in April by injecting 750 trillion rials ($2.8 billion) into the economy from which 500 trillion rials was given in loans to SMEs and the remaining to poor families as interest-free microcredit.

The total number of confirmed coronavirus cases in Iran on Saturday soared past one million with the death toll over 50,000.

Legislated

Saturday's decision is backed by legislation in July 2019 based on which compound interest on loans was canceled. The law covered loans that matured by the end of fiscal 2019-20 and debtors were initially given until the end of that year (March 19) to repay their dues.

The first deadline coincided with the coronavirus outbreak in Iran largely hammering SMEs.  The controversial bill was passed amid voices in favor and against the rare decision. The Majlis Research Center, the influential research arm of the parliament, said many manufactures had either downed their shutters or were on the verge of insolvency due to the back-breaking bank liabilities. Over the years they were neither able to repay their debts nor allowed to apply for new loans to survive. The restructuring also will help rescue banks saddled with mountains of bad debts and NPLs.

Rising NPls

Non-performing loans shot up 27% on annualized basis during the first quarter of the current fiscal year (March 20-June 20) to reach 2,090 trillion rials ($8 billion).

This was up 25.6% compared to the January-March quarter at 1,660 trillion rials ($6.3 billion), according to CBIs data compiled by the Tehran Chamber of Commerce, Industries, Mines, and Agriculture (TCCIM).

NPLs have been rising steadily over the past two years. It was 1,510 trillion rials in the last quarter of 2018-19 fiscal (Jan-March).

NPL ratio was 10.5% in Q1 or 1.5 percentage point higher than the previous quarter. NPL ratio, is the ratio of the amount of nonperforming loans in a bank's loan portfolio to the total amount of its outstanding loans.