A report by the Central Bank of Iran has inadvertently highlighted the pervasiveness of insider dealings and corruption which threaten the integrity of Iran’s entire banking system.
The report published by Tehran-based Aftab News website details a list of significant overdue, non-performing loans owed by bank customers and, in turn, the debts these banks owe to the central bank.
27 major institutional debtors who have borrowed from public and private banks collectively hold approximately 790 trillion rials (about $10 billion at the current free market exchange rate) in non-performing loans.
The loans were issued over several years when the Iranian rial held significantly more value, and with the tanking currency their actual value in today's terms is likely far greater than $10 billion.
A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full.
For instance, over a quarter of the total amount is owed by the Bank of Industry and Mines.
The bank's current CEO, Mahmoud Shayan, started his career as a junior employee at a branch of the National Bank serving religious seminary students in the Shiite holy city of Mashhad and rapidly climbed the ranks to serve as a board member of the National Bank and CEO of Bank Maskan, a real estate bank.
Even Iran's state-controlled media and officials have for years alluded to political insiders leveraging their influence to secure substantial bank loans through companies they or their associates control, often evading repayment obligations.
The largest entity indebted to the country’s banking system is the Middle East Mines and Mineral Industries Development Holding Company (MIDHCO), which has been under US sanctions since 2019.
MIDHCO’s chairman Majid Ghasemi is also the Deputy for Economic Research at the research center of Expediency Council, an official body staunchly opposed to Iran’s adherence to international anti-money laundering standards demanded by the global watchdog, the Financial Action Task Force (FATF).
The second largest banking debtor is Debsh Sabz Gostar, a tea trading company around which a $3.5 billion embezzlement scandal has swirled since 2023.
The third-largest debtor is state-backed automaker SAIPA, which was also active in Syria until 2023.
Following these are steel companies, including Esfahan Steel Company, which bears Iran’s second largest ever embezzlement case after Debsh Sabz Gostar.
The Islamic Revolutionary Guard Corps (IRGC) holds a nearly 50% stake in Khuzestan Steel Company, which is also implicated in the broader embezzlement cases of steel companies.
The companies are Iran’s largest steel producers.
The MAPNA Group, the largest electric power plant construction company in Iran, with close ties to IRGC is also the largest debtor to Pasargad Bank, Parsian Bank, and Bank Saderat.
Abbas Aliabadi, a former IRGC commander, served as MAPNA CEO until 2023, is currently the Minister of Industry.
Additionally, Ghadir Investment Company, under direct control of Iran’s Supreme Leader Ali Khamenei, whose largest shareholders are entities affiliated with the armed forces, is listed among the 27 largest non-performing debtors in the banking sector, both directly and through its sanctioned subsidiaries.
This massive accumulation of non-performing loans by entities linked to the IRGC comes at a time when the banks themselves are facing significant financial losses.
According to the central bank, the accumulated losses of seven banks reached 540 trillion rials ($6.8 billion) in October 2024.
Notably, Pasargad Bank and Parsian Bank top the list, while they also rank the second and third in term of granting non-performing loans to the 27 major banking debtors.
Profiting from exchange rate volatility
Over the past year, the value of the US dollar has risen by more than half against the Iranian rial, and over the past three years, it has almost tripled.
Real estate prices in Iran have increased even beyond the dollar exchange rate, creating an attractive opportunity for insiders to secure loans from banks and invest in real estate and other sectors.
MIDHCO, the largest banking debtor, saw a 25% jump in investments during the past Persian calendar year ending in March compared to the preceding year, despite an economic crisis gripping the country.
The government itself, the largest debtor, has also intensified borrowing from domestic banks which in turn borrow from the central bank.
The latest central bank statistics reveal that government and state-owned enterprise debt to the central bank jumped by 65% in October compared to the same month in 2023.
Government and state-owned enterprise debts to the overall banking system saw an increase by more than half.
To offset budget deficits caused by reduced oil export revenues due to sanctions, the Iranian government borrows from domestic banks.
These banks, in turn, borrow from the central bank, which has caused their debt to the central bank to double over the past two years.
To cover loans to banks and the government, the central bank has resorted to extensive money printing, resulting in liquidity surges and runaway inflation which are set to only deepen the country’s economic woes.