NPLs: Cash recovery down 20pc

KARACHI: The banking sector's cash recovery against non-performing loans (NLPs) has been on a slow track as has posted a notable decline of 20 percent during the third quarter of calendar year 2011 (CY11), as compared to second quarter, because of slow economic activity.

According the State Bank of Pakistan (SBP), the banking sector, including all banks' and DFIs' cash recovery against NPLs declined to Rs 13.779 billion during July-Sept of CY11 as compared to Rs 17.237 billion in second quarter (April-June), depicting a significant decrease of Rs 3.458 billion in the third quarter of CY11.

(NPLs are loans and advances whose mark-up/interest or principal is overdue by 90 days or more from the due date.)

Detailed analysis shows that major fall was witnessed in cash recovery of all banks, while DFIs also posted a slight decrease during the period under review.

All banks' cash recovery against the NPLs was Rs 17.007 during second quarter of CY11. It declined to Rs 13.657 billion in third quarter, showing a decrease of 19.69 percent or Rs 3.35 billion.

A fall of Rs 108 million was witnessed in cash recovery of DFIs and it stood at Rs 122 million in September 2011 compared with Rs 230 in June end quarter.

Economists say that slow economic activities, followed by energy crisis and high interest rate, are the chief reason of massive cut in cash recovery of NPLs. Although the banking sector is striving to recover maximum NPLs, the current economic situation is not supporting the banks and DFIs, they added. Some large transactions of leading institutions were still waiting to be resolved. Therefore, the overall recovery was witnessing decline, they pointed out.

They said that energy crisis, poor infrastructure and high interest rate are main hurdle in the revival of industries and without revival of ailing industries, banking sector cash recovery against NPLs would not improve.

According to SBP, all commercial banks' cash recovery of NPLs was down by Rs 1.735 billion to Rs 12.736 billion at the end of third quarter as against Rs 14.471 billion in second quarter of CY11.

Foreign banks' cash recovery stood at Rs 126 million, down from Rs 167 million; specialised banks saw Rs 921 million decline from 2.536 billion; and public sector banks cash recovery declined to Rs 2.134 billion from Rs 2.463 billion.

With an increase of 6 percent, non-performing loans (NPLs) of all banks and DFIs rose to new level of Rs 629 billion in Sept 2011 from Rs 591.226 billion June 2011 owing to high interest rate and poor law and order situation. Net NPLs to net loans ratio was also on higher side and it reached 6.53 percent end of third quarter from 5.48 percent in second quarter, depicting an increase of 1.05 percent in three months.