Banks’ NPLs Top $30b

EghtesadOnline: Iranian banks and credit institutions held a total of about 1.3 quadrillion rials ($30.87 billion) in non-performing loans by the end of the previous fiscal year on March 20, 2018, according to the rapporteur of Majlis Economic Commission.

News ID: ۷۸۲۷۱۳

27 May 2018

"By the end of last [fiscal] year, banks' non-performing loans stood at 1.3 quadrillion rials while other loans were registered at 700 trillion rials ($16.62 billion), which bring the total interests on all loans to about 2 quadrillion rials ($47.49 billion)," Rahim Zare' was quoted as saying by ICANA, the official news outlet of the parliament on Saturday.

The lawmaker also said an all-inclusive state economic committee has been formed with the specific aim of resolving all issues concerning major loan liabilities and decreasing NPLs.

He pointed out that the committee consists of representatives from the Central Bank of Iran, the Court of Monetary and Banking Crimes, the Prosecutor's Office, the Supreme Audit Court of Iran, the Documents and Real-Estate Registration Organization, the Ministry of Intelligence, and the Ministry of Economic and Finance Affairs, according to Financial Tribune.

"The committee will focus on major loans and introduce key bank debtors to the judiciary," Zare' said.

NPLs are one of the main problems challenging an already embattled banking system that is facing a hefty credit crunch. The bad loans have largely stacked as a result of years of mismanagement and loose supervision over banks that for a long time were governed by weak standards in conducting the credit scoring process and allocated macro loans to dubious applicants.

On Saturday, another lawmaker also criticized the process and said it is yet to be finalized.

"On many instances, banks receive collaterals in exchange for their loans whose real value has not been correctly assessed by experts," Mansour Moradi, a member of Majlis Planning and Budget Commission, said.

That is why the parliament and President Hassan Rouhani's administration have made reviving a portion of NPLs one of their main focuses, but no one is under the delusion that the banking system will be able to return NPLs in their entirety.

As attested by Majlis Research Center among many other entities and officials, about 60% of the total volume of NPLs are considered "unlikely to be cleared", which is the worst kind of bad loans and virtually irrecoverable.

The government and the parliament's main plan for recovering the NPLs involves a scheme that waived NPL penalties. According to latest statistics published on the scheme, which dates back to July 2017, more than $1 billion worth of NPLs had been returned by the people at the time.

The comments by Zare' come only days after a senior member of Majlis Article 90 Commission presented the latest report on the state of NPLs to lawmakers and the public, painting a highly contrasting picture.

During Tuesday's open session, Farhad Tajari said that by the end of the first half of the fiscal 2016-17 on Sept. 21, 2016, 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, of which 11% were considered NPLs while 61% of the NPLs were owned by non-state banks.

However, Tajari also said, "Unofficial statements concerning the real volume of non-performing loans offered by the banking system using various techniques reveal a ratio going as high as 50% of all bank loans".

That is while in mid-May 2017, CBI Governor Valiollah Seif had said after four years of Rouhani's tenure, the NPLs ratio had dropped to 10% or about 1 quadrillion rials ($23.75 billion).

On the other hand, a November 2017 study of official data pertaining to NPLs in the Iranian banking system over the past six years conducted by the Tehran Chamber of Commerce, Industries, Mines and Agriculture found that even though the ratio of bad loans decreased by then, the volume had increased steadily.

On Saturday, the parliament announced that it is continuing efforts in line with better addressing the bad loans. Following last week's controversial Article 90 commission's report, the parliament announced that on Sunday, Majlis Economic Commission will be specifically tasked with conducting further studies and evaluating the true volume of NPLs in the banking system.