THURSDAY JANUARY 13: Rising incidence of NPLs: over 43 percent decline in recovery

KARACHI: Recovery against non-performing loans (NPLs) by banks and DFIs has been on a significantly slow pace as it registered a noticeable decline of 43.39 percent in the quarter ended on September 30, 2010. Sources in banking sector told Business Recorder on Wednesday that NPLs of banking system reached an all-time high level of Rs 508.832 billion in September 2010 from Rs 475.946 billion in June 2010, mainly due to floods, high interest rates and slow economic activities.
The major raise in the NPLs was witnessed after floods in the country, of which banks' agricultural financing is continuously posting NPLs, and State Bank also estimated Rs 48 billion NPLs in the flood-hit areas. Floods and slow economic activities also disturbed recovery of NPLs. The State Bank said that banks and DFIs recovered Rs 10.650 billion in July-Sep 2010 against Rs 18.813 billion in a quarter earlier, depicting a decrease of Rs 8.163 billion.
A major decline was witnessed in banks' recovery, which slumped by Rs 7.443 billion to Rs 10.298 billion in September 2010 from Rs 18.371 billion in June 2010. During this period DFIs recovery on account of NPLs declined to Rs 351 million from Rs 442 million, showing a decrease of 19 percent in the third quarter of 2010.
Recovery of all commercial banks stood at Rs 9.733 billion in the quarter ended on Sep 30 2010 as compared to Rs 15.962 billion in June-end quarter. "SBP has adopted a tight monetary policy for last one year, of which key policy rate stood at 14 percent and high interest rate is directly raising the lending cost for the industrial loans, resulting in slow recoveries and increase in NPLs," sources said.
Economic slowdown, rupee devaluation, high inflation and political uncertainty also contributed to rise in NPLs and decline in recoveries, they added. "Rising trend in the NPLs and sharp decline in recoveries is a big threat for the banking system. Therefore, banks are considering developing a joint strategy," sources said.
Bankers say that slow recoveries of consumer and industrial portfolios have played primarily role in the massive surge. They said that at this position banks are required to further tighten credit appraisal and monitoring standards to increase their NPLs portfolio and reassess exposures in relatively high-risk areas.