Tehran Municipality received IRR25 trillion ($41.7bn) in loans from Bank Shahr during winter 2024, representing a violation 130 times the legal lending limit, according to Central Bank of Iran data published on July 28.

The municipality received the funds through 13 separate facilities from Bank Shahr, despite the bank being legally restricted to lending only IRR200bn ($333mn) to related entities under banking regulations, Etemad Online reported.

According to Central Bank regulations, banks can only lend up to 3% of their regulatory capital to affiliated entities. Bank Shahr's financial statements show this limit stands at approximately IRR200bn, meaning the bank exceeded its legal lending capacity by 13,000%.

The winter loan represents a dramatic surge from previous periods, with Tehran Municipality typically receiving a maximum of IRR2tn in loans over the past two years. During autumn 2024, the municipality's borrowing reached only IRR500bn, making the winter figure a 5,000% increase from the previous quarter.

The massive lending operation has raised questions about both institutions' compliance with banking regulations. Tehran Municipality, as a major shareholder in Bank Shahr, is classified as a related party, which triggers strict lending limits under Iranian banking law.

Bank Shahr was established specifically to provide financing and services to municipalities, with major city councils as its primary shareholders. However, the scale of lending to a single municipality has exceeded regulatory frameworks designed to prevent excessive exposure to related entities.

In the fourth quarter of 2024, more than IRR65 trillion in facilities were granted to approximately 145 companies and executive agencies. Of this amount, about 80% or IRR51tn was paid to just five agencies, with Tehran Municipality receiving the largest share.

The other major recipients included the Social Security Organisation with IRR12 trillion, Astan Quds Razavi with IRR8 trillion, the National Pension Fund with IRR3 trillion and Iran's State Trading Company with IRR2 trillion.

The lending pattern raises supervisory questions for the Central Bank of Iran as the regulatory authority responsible for overseeing banking sector compliance with lending limits and risk management requirements.