Iranian President Ebrahim Raisi has insisted that his government maintains transparency regarding the previously undisclosed identities of large debtors in the banking system.
An examination of data from the Central Bank of Iran reveals that the Iranian government is actually the largest debtor.
“You will remember that at the campaign meeting they handed out three names to the candidates.” [major debtors] It's in a sealed envelope, but now [Economy Minister] Khanduzzi has published financial information for 2,000 companies. [the Central Bank] We have made the website available for everyone to see,” President Raisi said at a meeting with hardline student activists on Saturday.
Raisi was referring to the highly sensational 2021 presidential debate. During the debate, his rival, Nasser Hemmati, former governor of Iran's central bank, handed Raisi a sealed envelope purportedly containing a list of the banking system's top debtors. Mr. Hemmati later said that he had provided his name on multiple previous occasions to the judiciary, which was then headed by Mr. Raisi, and that action had been taken. Hemmati added that due to legal restrictions, he could not reveal his name during the debate.
It has long been an open secret that Iran's largely state-controlled banks face capital shortages and that their lending policies are influenced by insiders, including Iranian clerics.
Ministry of Economy defines “major debtor” As a person or entity that holds loans representing at least 10% of the bank's total assets and is in default on payments.
That will happen in November 2021. Total loan amount is estimated at approximately $10 billion However, the value of these loans would have been five to six times higher in dollar terms at the time the loans were granted. Although the Iranian currency has depreciated significantly since mid-2018, most of these loans were issued before that period.
Four state-owned banks, including Mehri Bank, Iran's largest bank, published a list of their major debtors in April 2022, six months after the economy minister's order mandated compliance. Subsequently, the central bank published a list including: 14 other banks and their major debtors.
However, data published at the time and since is incomplete and ambiguous.
“What interest rates were charged on loans given to large debtors? What guarantees were made on the loans? How were the credit and guarantees of the borrowers evaluated? How much of the debt can be recovered? [the collection of] How much is questionable or impossible? ” editorial the reformist news outlet Sharg asked after the first set of lists was published.
A large debtor with low credit score, take a loan Instead of investing in production, they end up speculating in the housing, foreign currency, and gold markets, leading to higher inflation.
“What were these loans for?” Were the loans used for the purposes stated in the loan application? What assets were created with the money withdrawn from the bank and how much added value was created? Did it happen? ” the editorial asked, referring to such claims.
The public is often led to believe that the primary debtors to the banking system are individuals and private companies.
However, an examination of data provided by the central bank and other banks by Iran's international organization shows that the private sector's share of these loans is minimal.
Instead, entities such as the National Welfare Organization, Iranian National Oil Company (NIOC), banks, car manufacturers, and companies owned by several other government entities have emerged as the largest debtors.
During his election campaign, Raisi promised that central bank borrowing was a “red line” that the government could not cross. Government officials therefore insist they are fulfilling this promise.
Experts claim that the government is significantly increasing its borrowings from other banks to obfuscate its financial activities, rather than borrowing directly from the central bank to address the budget deficit.
According to these experts, this practice puts pressure on central banks to print more money to provide loans to these banks, leading to increased liquidity and higher inflation. According to Iran International calculations based on regular public statements, Raisi's regime is printing $460 million worth of banknotes every month, increasing the monetary base.
Darga Hatinoglu, an Iranian economic analyst and oil expert, told Iran International that “the debt of the government and government-owned companies to the banking system has doubled since August 2021, when Raisi took office.”
“Debts to the banking system include bonds issued by governments that banks were forced to purchase in payment of previous government debt. “That's why debt to banks continues to rise,” he said.
“However, the government's debt to the banking system is only a small part of its total debt. It also borrows heavily from the central bank and owes $100 billion to the National Development Fund. The total amount reached $118 billion, which is the equivalent of two and a half years of government. [operating] It’s the budget,” Katinoglu added.
