NPLs decline to eight-year low

Non-Performing Loans (NPLs) to total loans ratio has declined to an eight years' low level of 10.1 percent end of December 2016 mainly supported by strong recoveries. The State Bank of Pakistan in its Quarterly Performance Review (QPR) of the Banking Sector for the quarter ended 31st December, 2016 has reported that the asset quality, a key measure to gauge credit risk, has improved during the last quarter of CY16.
The report revealed that banking sector's NPLs to total loans ratio has declined to an eight years' low level of 10.1 percent in Q4CY16 compared to 11.4 percent end of CY15. Though, higher growth in advances to private sector in the last quarter of CY16 has primarily helped ease the infection ratio, the higher recoveries including cash recoveries, NPLs upgrade, restructuring/ rescheduling of loans, write-offs etc have also played a pivotal role in bringing the gross NPLs down, the report said. Particularly, with over 92 percent growth in cash recoveries of Rs 29.4 billion and NPLs upgrade of Rs 20.9 billion in October-December of CY16 have nudged gross NPLs down to Rs 604.4 billion at the end of CY16. The total NPLs at the end of CY15 were stood at Rs 605.4 billion.
Fresh NPLs, on the other hand, have inched up by Rs 31 billion. The rise in fresh NPLs is primarily due to increase in agriculture loans classified during the quarter ending December 2016. Due to longer cropping cycle (than NPLs classification time), every year in June and December quarters, a certain amount of agricultural loans fall into OAEM category, which are subsequently recovered in the following quarters of September and March, respectively.
According to the SBP, provision coverage ratio of the banking sector has also jumped up to 85.0 percent compared to 82.7 percent in Q3CY16, mainly, on account of decrease in provisions on receding NPLs. Similarly, the capital impairment ratio (Net NPLs to eligible capital under Basel III) has declined by 181 bps to 7.3 percent in the reviewed quarter indicating reduced risk to the equity of the banking sector form credit risk. The report said that a combination of the financial soundness indicators (FSIs) suggested that the risk profile of the banking sector, as a whole, remains stable and its resilience to absorb certain shocks has stayed in comfortable zone.