Non-performing loans of SME sector at Rs 96 billion: SBP report

KARACHI: The Non Performing Loans (NPLs) of SME Sector has registered an increase of over Rs 5.1 billion to Rs 96 billion by end of Dec 2010.

According to a presentation made on a one-day conference at Central Bank on Tuesday on 'SME Banking in Pakistan, trends and role of Value Added Services' in collaboration of International Finance Corporation (IFC), the NPLs increased from Rs. 91.6 billion at the end of December 2009 to 96.5 Billion at the end of December 2010, constituting about 19.4% of total NPLs of the Banking industry.

The quarterly increase recorded was 5.4% as compared to rise of 4.4% during the corresponding quarter of 2009.

Of the total amount about 80.4% is attributed to Working Capital finance, 16.4% to Fixed Investment Finance, and the remaining 8.6% to Trade Finance.

NPLs reveal that there has been a sharp rise in NPLs since December, 2007 mainly attributed to the wave of economic slump which has been further aggravated by the unprecedented floods.

Further, the increase in SME NPLs is also consistent with the rise of the total NPLs of banking industry which too recorded a quarterly rise of 3.1% at the end of the period under review.

The report prepared by SBP's SME Finance Department, further added that the share of Public Sector Banks i.e. NBP, FWBL, BOP, BOK and Sindh Bank constituted about 13.5% of the total SME outstanding amount at the end of the reporting period, recording a rise of 28.0% in their total outstanding share towards SME sector.

Private Banks share in total SME outstanding was 82.0%, the highest among the categories of banks. This category of banks consists of 19 banks. The outstanding amount in absolute terms was Rs. 274 billion; moreover, it too recorded a quarterly rise of 6.8%.

Among private banks HBL has the highest share of 15.6% followed by ABL bank with 9.4%, Bank Alfalah with 9.0%, and NIB with 7.8% respectively in total SME financing. This category of banks contributed about 11% of their Overall Outstanding Portfolio towards SME Sector.

Islamic Bank's absolute amount outstanding at the end of December, 2010 was Rs. 4.3 Billion constituting about 1.3% of the total SME outstanding amount.

This category of banks witnessed a quarterly decline of 0.2% and 19.8% in SME outstanding amount and borrowers respectively. Moreover,their NPLs recorded a rise of 6.3% at the end of the period under review. The low share of Islamic Bank's towards SME Sector is primarily due to the fact that the major chunk of their Overall Portfolio (87%) is occupied by corporate and consumer sectors.

The absolute amount outstanding against foreign banks declined from Rs 1.68 Billion (at the end of Sept-10) to about RS.0.6 billion at the end of Dec-10, forming 0.2% of the total SME financing in the country. The share of foreign banks did not see any significant improvement as their major chunk of overall portfolio targets in the corporate and consumer sectors.

The SBP report further pointed out that government, recognizing the severity of economic and social impact of recent floods, announced a number of relief packages for affected borrowers which are being implemented by State Bank in consultation with the relevant ministries.        According to the census of establishments conducted by the Federal Bureau of Statistics (FBS) there are about 3.2 million economic establishments in Pakistan. Out of these SMEs 90 percent of all private enterprises employ approximately 78 percent of non-agricultural labor force.

Enterprise wise analysis revealed that Manufacturing SMEs share formed 40.5 percent, Trading SMEs 44.7%, and Services SMEs a share of 14.8% at the end of the quarter under review. Moreover, their share in total SME outstanding borrowers was 17.9%, 50.9% and 31.1% respectively.

The SME outstanding borrowers stood at 211,419 constituting about 5.4% of the total number of outstanding borrowers in the banking industry and recording a quarterly decline of about 6.1% at the end of Dec, 2010, the report added.

The conference was largely attended by leading bankers and key address was made by SBP Governor, Shahid Kardar, who highlighted the importance of the SMEs in the growth of country's economy.