Non-Performing Loans (NPLs) of the banking industry (banks and DFIs) kept on accumulating, climbing to over Rs 21 billion in the first nine months of this calendar year (CY15). Bankers said that after posting an optimistic trend during the last calendar year (CY14), NPLs of the banking industry are again on increase creating new challenges for the highly profitable sector of the country. They said that the rising trend in NPLs is not a good sign for the growing industry and may pose new credit risk for the financial sector of Pakistan.
"Although, banking sector's major investment is in low risk government securities, of which their earnings are gradually increasing, however, banks and DFIs are required to take special measures to curtail the rising trend of NPLs," they added. NPLs are those loans and advances, whose mark-up/interest or principal is overdue by 90 days or more from the due date.
According to State Bank of Pakistan, overall NPLs (domestic and overseas operation) of the financial sector (banks and DFIs) increased to Rs 21.41 billion during first nine months (January-September) of CY15. With current increase, cumulative NPLs of banks and DFIs rose to Rs 645.179 billion as on September 30, 2015 compared to Rs 623.769 billion on December 31, 2014. A detailed analysis revealed that major increase has been witnessed in the NPLs of banks, while NPLs of DFIs posted a slight surge during the period under review. NPLs of all banks increased by Rs 21.22 billion to Rs 629.856 billion in September 2015 against Rs 608.636 billion in December 2014. During the period under review, NPLs of Development Finance Institutions (DFIs) mounted by Rs 189 million to Rs 15.322 billion at the end of the third quarter of CY15.
The sector-wise analysis revealed that NPLs of Public Sector Banks (PSBs), Local Private Banks (LPBs) and Specialised Banks (SBs) witnessed an upward trend, while NPLs of Foreign Banks (FBs) moved down during the period under review. NPLs of PSBs moved up from Rs 182.581 billion to Rs 197.829 billion in September 2015, up Rs 15.248 billion. NPLs of LPBs climbed by Rs 4.9 billion to Rs 393.656 billion.
Similarly, NPLs of FBs fell by Rs 1.351 billion to Rs 3.405 billion in September 2015 from Rs 4.756 billion in December 2014. However, net NPLs to net loans ratio slightly decreased from 2.80 to 2.59 percent at the end of the third quarter of CY15. "It is believed that slow economic activities, during the last couple of years, followed by power outage and poor law and order situation are responsible for growth in NPLs of the banking industry," economists said.
As the industry has a safe investment opportunity in the shape of Market Treasury Bills and Pakistan Investment Bonds, banks' profitability is not getting hurt, they added. As the financial sector has secure investment in government papers, it is reluctant to expand financing to the private sector, however recently the federal government has announced that it will take some measures to increase the private sector growth, they maintained.
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