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EghtesadOnline: The Iranian banking sector’s ratio of non-performing loans stood at 11% by September 20, down from 13.6% in September 20, 2014, the Central Bank of Iran’s governor announced.

Valiollah Seif has sent a letter to chief executives of banks and credit institutions on Sunday appreciating the measures taken by banks and government and related bodies for partially curbing the growth of NPLs and lowering the ratio to 11%.

 “Immaturity of the capital market, dominance of banks in financing the business sector and insistence on using banks’ limited resources for solving structural problems of the economy were the main causes of growth in NPLs in recent years,” he said.

“Many borrowers failed or decided not to repay their loans, due to social, political and economic conditions of the country.”

In the past decade, bankers were under strong government pressure to allocate subsidized loans to individuals and companies that harmed the procedure of evaluating loan applicants and their credibility, Financial Tribune reported.

Due to mounting financial pressure on banks and businesses, many borrowers decided not to repay. Some big borrowers even preferred to pay fines for defaulting because taking out new loans would have been more costly.

  Ratio Target

The CBI governor called on bankers to continue taking calculated measures “until the ratio reaches the 5% goal”, which he noted is of high importance for the country.

Elaborating on CBI’s expectations from the banking sector, he said banks are supposed to form special working groups to come up with the best solutions for raising the efficiency of their resources.

“Lenders should revise their methods of assessing applicants’ creditworthiness along with an efficient mechanism for supervising the implementation of reforms in all their units and branches,” he said.

Seif also tasked lenders with providing the central bank with periodic reports on their performance regarding the above-mentioned requirements.

Back in November, a study conducted by CBI found that covert internal workings of Iranian banks have largely contributed to their high rate of non-performing loans.

It was reported that the remaining NPLs of banks have more than quadrupled from 204.87 trillion rials ($6.4 billion) in 2007 to 863.42 trillion rials ($27.1 billion) in 2015.

Banks have recovered 203 trillion rials ($6.3 billion) of their non-performing loans in the past three years.

Iran Banking non-performing loans Central Bank of Iran Iran loans