The gross non-performing loans (NPLs) of the banking system have surged by rupees seven billion during the last three months to reach Rs 163 billion on September 30 as compared to Rs 154 billion recorded on June 30 this year.
Gross NPLs to gross advances of the commercial banks arrived at 6.5 percent on September 30, while it was 6.1 percent a quarter earlier and 5.4 percent on December 31, 2006.
Moreover, the segregating data indicated that Rs 25 billion (16 percent of NPLs) were classified as substandard; Rs 19 billion (12 percent of total NPLs) as doubtful and Rs 113 billion (69 percent of total NPLs) as loss category.
On the provisioning side, these loans are covered with 17 percent, 38 percent and 82 percent provisions in substandard, doubtful and loss categories respectively.
On the basis of nine months of 2007 results, this implies that commercial banks need to provide Rs 24 billion excess provisioning full year 2007 results as per the new directive of the State Bank of Pakistan regarding forced sales value (FSV) of collateral.
However, the said provisions might be less or more depending on the recovery/increase of NPLs in the fourth quarter of 2007, Muhammad Imran Khan, an analyst at First Capital Equities said.
On the basis of the provisions, provided by the commercial banks against their non-performing loans, the net NPLs to net advances ratio of the commercial banks arrived at 2.4 percent. This ratio was 2.2 percent at the end of proceeding quarter (June 2007), while at the end December 2006, it was only 1.7 percent.
"It is pertinent to mention that our calculation is different from the data available on the website of the central bank", he said, and added: "We have only considered the specific provisions for determining net NPLs to net advances, while the data on central bank website also consider general provisions for the calculation of the same.
"We are not including the general provisions in our analysis as specific provisions are actually provided against bad loans and the purpose of net NPLs to net advances ratio is to analyse provisions covering bad loans as compared to net advances (gross advances-provisions). Inclusion of general provision, basically understates net NPLs to net advances ratio and general provisions are not actually against bad loans.