Banks Told to Bear With Defaulting Manufactures

EghtesadOnline: The Economy Minister Ehsan Khandouzi said manufacturing units unable to repay debts to banks should not be shut.

News ID: ۷۸۷۲۰۶

26 October 2021

He communicated this in a letter to the Industry Minister Reza Fatemi Amin, asking him to submit the list of production units closed due to bank arrears, the news agency of the Economy Ministry said.

While underscoring the need for viability of indebted businesses, Khandouzi said “bank debts have to be reimbursed without undermining production units and jobs.”

In the meantime, the minister asked his banking deputy to “effectively oversee the process of settlement of bank debts.”

Addressing lenders, he urged them to defer production companies that are potentially capable of functioning or their failure to repay debts is due to the lack of raw materials or similar pitfalls.

“If production units stop work either due to technical problems or when the owner is unqualified to own the unit, banks can appropriate the company only on the condition that the confiscation doesn’t lead to closure and job losses,” the minister said.

For years banks have complained that defaulting companies have indeed created a mountain of bad debt and NPLs that have hurt their balance sheets and upped credit risk.

Small wonder banks are unwilling to lend.

Citing statistics from the Iran Small Industries and Industrial Parks Organization (ISIPO), Alireza Qeitasi, secretary for Coordination Council of State and Privatized Banks, said earlier that banks own 1,700 properties expropriated from defaulting businesses.

The properties are mostly development projects and companies taken over by banks after they failed to repay their debts.  As per data, 60% of such businesses are operating after coming under banks’ ownership.

Banks have come under strong criticism for seizing manufacturing units and disrupting production, particularly when most companies are already grappling with a myriad of challenges in procuring raw material and finding markets due to high inflation, deteriorating economic conditions and the US economic sanctions.

Government-owned banks have expropriated most of the assets, according to Mohammad Reza Jamshidi, secretary-general of Iranian Private Banks' Association. “Private Banks have taken over 19 defaulting companies,” he told ISNA earlier.

“Most of these properties are controlled by the government-affiliated banks. This is because private banks are less involved in funding manufactures.”