New Report Reveals Banks’ NPL Ratio Gap

EghtesadOnline: A senior member of Majlis Article 90 Commission presented the latest report on the state of non-performing loans of Iran's banking system in Tuesday's open session, which painted a highly contrasting picture.

News ID: ۷۸۲۶۸۱

23 May 2018

"At present, even the banking regulator [Central Bank of Iran] lacks precise data about the volume of banks' restructured loan portfolios," Farhad Tajari was also quoted as saying by ICANA, the official news outlet of the parliament.

However, he made a claim that, if proven to be true, paints a dark picture of the banking system.

"Unofficial statements concerning the real volume of non-performing loans offered by the banking system using various techniques tell of a ratio going as high as 50% of all bank loans," Financial Tribune quoted him as saying.

CBI Governor Valiollah Seif had last year put the ratio of banks' NPLs to total loans at around 10% and the report of Majlis Article 90 Commission–which mostly handles complaints–also revealed numbers in the same ballpark but widely suspected of lacking credibility.

As Tajari explained to lawmakers, banks create fake assets by restructuring their NPLs and overpricing their fixed assets to cover up the massive gap between their assets and liabilities.

Majlis Research Center, the parliamentary think-tank, in its latest report on the deficiencies of Iran's banking system on May 14 attested that "even as official statistics announced NPLs to be declining, the truth is that many banks register liabilities as new facilities to show a lower volume of NPLs".

"The remarkable thing is that among the three kinds of NPLs, more than 60% of Iranian banks’ NPLs are classified ‘unlikely to be cleared’ which is the worst kind," MRC wrote at the time.

According to the report that used data provided by banks, by the end of the first half of the fiscal March 2016-17, the total amount of interests on all rial loans allocated by the banking system equaled 8.16 quadrillion rials ($194 billion), 61% of which were held by non-state banks and the rest belonged to state-run lenders.

Among state-owned banks, Maskan, Melli and Keshavarzi had lent the largest volume while Mellat, Saderat, Tejarat and Ayandeh held the highest amount of rial liabilities among private and privatized banks.

Of this figure, the volume of debt considered non-performing stood at 873 trillion rials ($20.79 billion), while 22% were owned by state-run banks. Bank Melli at 32%, Bank Maskan at 20% and Bank Keshavarzi at 15% had the highest ratio of NPLs.

"The ratio of NPLs to total rial loans in all banks and credit institutions was 10.7% and this number equaled 9% and 11.7% for state-owned and non-state banks respectively," the report said, putting the ratio for privatized banks at a much higher 14.5%, which was branded "considerable" and "telling of much higher credit risks".

In case of expected generated interest from foreign currency loans, the report said the number was more than 1.19 quadrillion rials ($28.3 billion) by the end of the first half of the fiscal 2016-17. The share of banks in owning the liabilities was almost equal to state-run lenders' 52% share.

The foreign currency NPL ratio of state-owned banks was 18.9%, the commission's report announced, stressing that it is much worse than the case of rial loans, while "foreign exchange fluctuations can be considered the root of the issue here".

Among state-run banks, Bank Maskan had a staggering 100% NPL ratio for its foreign currency loans and was followed by Bank Keshavarzi and the Export Development Bank of Iran with ratios of 76.9% and 25.4%.

"A majority of NPLs are considered 'unlikely to be cleared' which have a high level of risks and must be dealt with as soon as possible," the report said.

The average NPL ratio of Iranian banks for their foreign currency loans was reported at 13.4% by the aforesaid time.

All-in-all, Iran's banks were owed a total of 9.36 quadrillion rials ($222.54 billion) of interest on their entire portfolio of rial and foreign exchange loans by Sept. 2016. Of this amount, 11% were considered as NPLs while 61% of the NPLs were owned by non-state banks.

"The ratio of NPLs to total loans was 11%, 10.4% and 11.5% in all banks and credit institutions, state-run banks and non-state banks respectively, showing that state-run banks are in better shape than non-state banks," the report said.

According to the report, the same numbers were 10.2%, 9.2% and 11.1% by the end of the fiscal 2015-16 in March, indicating worsening conditions.

The report also corroborated the previous claim by MRC that 60% of the NPLs, or 611 trillion rials ($14.55 billion), are considered unlikely to be cleared which "have the ability to be put in the category of interests of the banking system that have been lost".

At present, the report concluded, the NPL ratio stands at 11%, which is still a far cry from the 2-5% envisioned and witnessed in global standards.