The banking sector's cash recovery against Non-Performing Loans (NPLs) posted a notable fall of 40 percent during the third quarter of Calendar Year 2012 (CY12) as compared to second quarter mainly due to economic slowdown. Although, NPLs of banking sector are on decline during the period under review, at the same time cash recovery is also on a slow track. NPLs mean loans, whose mark-up/interest or principal is overdue by 90 days or more from the due date.
"Slow economic activities followed by energy crisis and high interest rate are the key hurdles towards cash recovery of NPLs," bankers said. The State Bank of Pakistan has adopted a tight monetary policy from last few years with a view to curbing inflation while high interest rate has raised the lending cost of the borrowers, resulting in increase in NPLs and slow loan recovery, they added.
"During the second quarter, some large transactions were also settled, which increased the cash recovery against NPLs. Tough efforts are enquired to increase the cash recovery against NPLs and the banking sector is also striving to recover maximum NPLs, however, the current economic situation is not supporting these efforts," they added.
Industry sources revealed that banking sector's (including all banks and DFIs) cash recovery against NPLs fell to Rs 12.364 billion during the July-September of CY12 as compared to Rs 20.664 billion in second quarter (April-June), depicting a significant decrease of 40 percent or Rs 8.3 billion in third quarter of CY12.
Detailed analysis revealed that major fall has been witnessed in cash recovery of all banks, while DFIs have also posted a slight decrease during the period under review. All banks' cash recovery against the NPLs registered a fall of 40.32 percent or Rs 8.198 billion to Rs 12.134 billion in third quarter of CY12 compared to Rs 20.332 billion in second quarter of current calendar year.
In addition, a decline of Rs 103 million was witnessed in cash recovery of DFIs as it fell to Rs 229 million in July-September 2012 against a recovery of Rs 332 million in April-June 2012. All commercial banks' cash recovery of NPLs fell by 36 percent or Rs 6.228 billion to Rs 10.927 billion at end of third quarter against Rs 17.155 billion in second quarter of CY12. Only foreign banks' cash recovery has shown some improvement as they have recovered Rs 384 million in July-September 2012 compared to Rs 155 million in April-June quarter.
During the period under review, NPLs of the entire banking industry fell to Rs 635.831 billion as on September 30, 2012 compared to Rs 653.982 billion as on June 30, 2012, depicting a decrease of 2 percent or Rs 18.15 billion. Net NPLs to net loans stood at 5.39 percent at end of third quarter from 6.17 percent in second quarter.
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