After stagnating in the quarter before, the infection ratio of non-performing loans jumped by 90 bps to staggering 12.4 percent in the quarter ending September - leaving the proponents of recovery thesis perplexed.
Last week, this section mentioned the slowdown in NPLs growth during the last quarter (Jul-Sep) based on raw toxic assets data of commercial banks. However, the quarterly banking sector report, published by the central bank, reveals a different picture for the overall sector.
Absolute growth in bad loans, including that by specialized banks, almost remained at the same level (6 percent) as in the previous two quarters; while that by commercial banks (as per raw data) reduced from an average of 9 percent growth to 4 percent in this quarter. However, decline in loans growth (1.8%) versus an increase of 5 percent in the previous quarter caused the bad loans ratio to spike upwards.
The worrisome fact is that a substantial part in overall NPLs occurred in the last category - payments overdue more than one year. This explains the over 5 percent increase in provisioning. Although, the relaxation in FSV benefit may put brakes to the growth in provisioning for the last quarter of this calendar year, the deterioration in balance sheet quality will keep the aggressive industrial sector lending at bay.
Bad loans ratio in the biggest sector textile (17.2% Loans share) rose at even higher pace in the last quarter by 175 bps to 20.57 percent. The second largest segment, individuals with 13.4 percent share in total loans, followed similar trend with an increase 235 bps to 12.22 percent in NPLs-to-loan ratio. The tale is similar for agri-business and financial sector. Sugar, thanks to the bitter crises, exhibited a massive increase of 853 bps to 18.73 percent in NPLs ratio, although its share in total loans is not significant.
On the other hand, electric & transmission of energy constituting one-tenth of total advances, chemical & pharmaceuticals (3.6% share) and cement (2.6% share) fared well in the last quarter with 118, 106 and 27 bps decline in non performance ratio, respectively. This shows that certain important sectors of economy are showing resilience with a hope that rest of the economy will show similar trends in the coming quarters.
With LSM index showing marginal growth in October and credit to private sector in green during the second quarter, the release of IMFs fourth tranche and chances of monetary easing in the second half, some improvement in non-performing loans cannot be ruled out.