Bad Loans Decline
EghtesadOnline: Data published by the Central Bank of Iran show lenders have performed reasonably better in reducing non-performing loans in the previous fiscal year that ended in March.
The ratio of NPLs to total loans by banks declined to 6.7% by end of the fiscal 2020-21. The CBI website said the ratio declined by 1.8 percentage points compared to the third quarter of the previous fiscal year ending Dec.20.
NPL ratio is the ratio of the amount of nonperforming loans in a loan portfolio of banks to the total amount of outstanding loans the banks hold. The ratio measures the effectiveness of a bank in receiving repayments on its loans.
With total outstanding loans at 27,922.7 trillion rials ($116.7 billion) in March and the NPL ratio at 6.7%, the total bad loans are estimated to be around 1,870 trillion rials ($7.7b) by end of fiscal 2020-21.
A bank loan is normally classified as nonperforming when payments of principal and interest are 90 days or more past due, or when future payments are not expected to be received in full.
The ratio in the report relates to both rial and forex loans. It was 8.8% for loans borrowed in foreign currency posting 17% decline compared to the year before. It was 6.2% for rial loans down 27.9% to rial NPLs the year before.
Data suggest the decline in overall NPL ratio mostly was due to bad loans in rials and forex loans contributed more to the NPL ratio.
As per data, defaulters were mainly in the key forex segment who failed to meet their commitments due to the prohibitive rise in currency rates, the US economic blockade and rising production costs.
Decline in the growth of bad loans indicates the relative success of the CBI and other supervisory bodies in recovering bad debt.
Former CBI governor Abdolnasser Hemmati said earlier that the big defaulters had repaid 30% of their arrears and “11 major debtors owe 900 trillion rials ($3.9b) to the banks.
High NPL ratios over the years have hurt banks’ books and forced them to suspend lending, despite the chronic need of businesses to borrow. For this and other contradictions (lack of transparency and collateral in granting big loans) most banks have often been castigated by economic experts and business leaders.
NPLs of Iranian banks are often higher compared to their peers in the developing and developed world where it is mostly in single digits and usually below 5%.
A look at the NPL ratio of countries across the globe published by the World Bank shows that in 2019 it was 2.5% in France, 0.9% in the United States, 3.8% in Poland and 3.1% in Brazil. Turkey, Pakistan and Afghanistan registered 5%, 8.6% and 8.9%, respectively, in 2019.