Banks, DFIs recover Rs 68 billion against NPLs

Taking special measures, banks and development finance institutions (DFIs) have made Rs 68 billion cash recovery against non-performing loans (NPLs) during the last calendar year 2011, which is up by 15 percent. Sources in banking sector told Business Recorder on Monday that cash recovery against NPLs by the banks and DFIs had mounted significantly in calendar year 2011 (CY11) owing to some solid efforts taken by the banking industry for the recovery of defaulted amount.
The rising trend in NPLs has forced the banking industry to develop a comprehensive policy and make serious efforts for the recovery of NPLs. NPLs of banking industry are continued to accumulate and posted a phenomenal raise of over Rs 56 billion by end-CY11, creating new challenges and credit risk for the financial sector of Pakistan. With current increase, cumulative NPLs of banks and DFIs have mounted to Rs 623.193 billion as on December 31, 2011 compared with Rs 566.645 billion as on December 31, 2010.
However, at the same time cash recovery against NPLs has improved during the last calendar year and cumulatively cash recovery has surged by some 15 percent as on December 31, 2011. "This could be good news for the entire financial sector that cash recovery against NPLs has been moving toward improvement and this will help the banks to widen financing portfolio," bankers said. Banks/DFIs were making serious efforts to recover NPLs and in result of those efforts the cash recovery had posted a massive increase during CY11, they added.
"Banks/DFIs' efforts for the cash recovery against the defaulted amount will result in raise in income, besides strengthening the banks' liquidity position enabling them to facilitate the private sector, which is facing serious shortage of financing," they added.
According to State Bank of Pakistan (SBP), cumulative banks and DFIs cash recovery against NPLs had registered a growth of 14.6 percent during CY11 as compared to CY10. All banks and DFIs have recovered Rs 68.03 billion on account of cash recovery against NPLs during CY11 compared to Rs 59.369 billion in CY10, depicting a raise of 8.66 billion. Mainly, banks have made a notable recovery during the period under review, while DFIs have also posted a slight increase in cash recovery. Cash recovery of all banks has mounted by 15 percent or Rs 8.575 billion to Rs 66.482 billion during CY11 as compared to the recovery of Rs 57.907 billion in CY10.
Similarly, with an increase of five percent or Rs 87 million, DFIs have made cash recovery of Rs 1.548 billion in CY11 against Rs 1.461 billion in CY10. The detailed analysis revealed that foreign banks' recovery was on fall and they had recovered Rs 656 million during the period under review compared to rupees two billion in corresponding period of last fiscal year, depicting a decline of 67 percent or Rs 1.34 billion in CY11.
The heavy-weight local private banks, having highest amount of NPLs (Rs 370 billion), showed a recovery of Rs 47.161 billion in last calendar year against Rs 42.651 billion recovered during a year earlier. The specialised banks' cash recovery has improved as they recovered Rs 8.18 billion in CY11 as compared to Rs 6.84 billion in CY10. Recovery by public sector banks surged to Rs 10.476 billion during period under review as against Rs 6.408 billion in previous quarter.
Analysts point out that the situation is very encouraging as the banks, which are still facing huge NPLs, will have more resources to provide finance to the private sector. It may be mentioned here that credit risk has been a major challenge for financial sector of Pakistan because of continuous growth in NPLs since CY07.