Small and Medium Enterprises (SME) sector's Non-Performing Loans (NPLs) declined significantly by almost 6 percent or Rs 5 billion during the first quarter of this calendar year (CY15). According to State Bank of Pakistan (SBP), the possible reasons for this decline could be the loans' write off or recoveries, resulting in decrease in amount of NPLs.
SBP in its Quarterly SME Finance Review for Jan-March 2015 revealed that after witnessing an upward trend during the last year, NPLs of SME sector are on decline in the first quarter of this year. Quarter on Quarter basis, SME sector NPLs decline by 6 percent or Rs 4.92 billion in Jan-March to reach Rs 82.128 billion as on March 31, 2015 compared to Rs 87.05 billion as on December 31, 2015. In addition, NPLs witnessed a 7 percent decline when compared with previous year's NPLs which were Rs 88.23 billion in March last year.
NPLs to loans ratio of SME Financing decreased to 31 percent in March, 2015 from 34 percent in December, 2014. The continuation of this trend would encourage banks/DFIs to lend more in this sector in future.
According to SBP, some banks have managed to bring down their SME NPLs in the first quarter of CY15. As compared to the previous quarter, JS Bank Limited recovered all its NPLs in this quarter. Similarly, Albaraka Bank (Pakistan) Limited recovered 52.4 percent of its NPLs in the quarter under review. Faysal Bank Limited stood third in recoveries, as it recovered 31.2 percent bad loans in the quarter ended on 31st March, 2015. During the period under review, National Bank of Pakistan (NBP) and SAMBA Bank recovered 15.4 percent and 12 percent, respectively.
The Outstanding SME Financing of the banks/DFIs went down by 9 percent to Rs 261.75 billion as on March 31, 2015 as compared to previous quarter. However, SME financing showed a Y-o-Y increase of 4.46 percent when compared with March 2014. SME outstanding financing was 5.8 percent of total financing as compared to 6.3 percent in the previous quarter.
Facility-wise break-up shows that the working capital financing constituted 72 percent of outstanding SME financing followed by fixed investment and trade finance with shares of 16 percent and 11 percent, respectively. Banking group-wise distribution of SME financing shows that the share of private sector banks in outstanding SME financing was the highest at 70 percent. Private sector banks were followed by public sector banks, which shared around 24 percent (increased from 22 percent at the end of previous quarter) of total SME outstanding amount. Accordingly, the share of Islamic Banking Institutions (IBIs) decreased by almost 7 percent when compared to previous quarter. The share of SME financing of Islamic Banking Divisions (IBDs) was more than the share of Islamic Banks in Pakistan. Total share of Islamic Banks in SME financing was around 2 percent while IBDs contributed around 3 percent.