Banks Told to Return Seized Indebted Firms

EghtesadOnline: The Central Bank of Iran issued instructions on Saturday to banks to return seized properties to the original owners.

News ID: ۷۸۷۷۰۰

30 January 2022

The decision was made in a meeting of the Money and Credit Council and relates to manufacturing companies seized by the banks in lieu of unpaid debt, the CBI website reported.

Accordingly, lenders are obliged to give back real estate and other properties of manufacturers to the original owners.

The process can take the form of a rent-to-own agreement in which the original owner and lenders determine the method of payment of pending debts.

Also known as rental purchase, rent-to-own is a type of legally documented transaction under which tangible property, such as furniture, home appliances and real estate is leased in exchange for a regular payment, with the option to purchase at some point during the agreement.

Original owners can regain the seized properties by reimbursing their debt either in cash or installment.  Under the installment method, owners have to reimburse at least 10% of their debt to the bank in cash. Considering 1 year grace period, the owner must reimburse arrears to the bank at the most within five years.

Company owners whose properties have been appropriated by banks in the past 18 months can benefit from the new rules within six months after enforcement.

The CBI noted that the move is in line with the government’s policy to revive businesses that were closed after confiscation by banks for failing to meet their financial commitments.

The issue is said to be a major concern for President Ebrahim Raisi who has underscored the need to avoid business closures due to bank arrears and ordered his economy minster to do what is necessary.

Earlier the Economy Minister Ehsan Khandouzi announced that no manufacturing unit should be shuttered for not paying debts to banks.

In a letter to Industry Minister Reza Fatemi Amin, Khandouzi asked him to list production companies closed due to financial failures.

Underscoring the need for helping indebt businesses, Khandouzi emphasized that “bank debts should be reimbursed without undermining the production units and jobs”.

1,700  Businesses Seized

Citing data published by the Iran Small Industries and Industrial Parks Organization (ISIPO), Alireza Qeitasi, the secretary for Coordination Council of State and Privatized Banks, said earlier that banks hold more than 1,700 properties, taken from businesses that defaulted on their loans.

The properties are mostly development projects and business units that were seized after they failed to repay their debt.

As per data, 60% of these businesses are still operational after coming under banks ownership.

Banks are under mounting criticism for appropriating manufacturing units and disrupting the production sector, particularly when most businesses are already grappling with colossal challenges in procuring raw materials and finding markets due to galloping inflation and the US economic sanctions.

Government-owned banks are the principal owners of the seized companies, according to Mohammad Reza Jamshidi, secretary-general of Iranian Private Banks' Association. “Private banks own only 19 default companies,” he told ISNA earlier.

“Most of the properties are controlled by government-affiliated banks. This is due to the fact that private banks are less involved in funding manufacturing units,” he claimed.