Non-Performing Loans (NPLs) of banking industry continued to accumulate, posting a phenomenal rise of over Rs 29 billion during the first half of this calendar year (CY16), posing new challenges for the financial sector. Despite experiencing a slowdown in the last calendar year, NPLs rebounded and are moving upward since January this year. Non-Performing Loans are loans and advances whose mark-up/interest or principal is overdue by 90 days or more from the due date.
Bankers said the current rise reflects that the challenge of higher NPLs is still not over and this is a caution for entire financial sector. Owing to high NPLs, the banking industry is reluctant to expand financing to the private sector and major investment is being made in government securities, which are more secure as compared to private sector lending, they added.
In the current scenario, the banking industry is required to further tighten their loan policy aimed at restraining the rising default cases, they maintained.
The State Bank of Pakistan revealed on Monday that NPLs of banks and DFIs (domestic and overseas operation) posted a healthy growth of 5 percent during January-June of CY16. NPLs of banks and DFIs reached Rs 649.057 billion as on June 30, 2016 compared to Rs 620.448 billion on December 31, 2015, depicting an increase of Rs 28.609 billion.
The entire surge has been witnessed in the NPLs of banks, while NPLs of DFIs posted some decline during the period under review.
NPLs of banks recorded an increase of Rs 29.10 billion during the first half of this year.
With current increase, cumulative NPLs of all banks amounted to Rs 634.546 billion in June 2016 compared to Rs 605.444 billion in December 2015. During the period under review, NPLs of Development Finance Institutions (DFIs) declined by Rs 493 million to Rs 14.511 billion down from Rs 15.004 billion.
The detailed analysis revealed that NPLs of Public Sector Banks (PSBs), Local Private Banks (LPBs) and Specialized Banks (SBs) were on rise during first half of CY16. However, NPLs of Foreign Banks (FBs) declined slightly.
With an increase of Rs 10.843 billion, NPLs of PSBs surged to Rs 200.911 billion in June 2016 compared to Rs 190.068 billion in December 2017. Similarly, NPLs of LPBs and SBs rose by Rs 5 billion and Rs 13.127 billion to Rs 387.033 billion and Rs 43.294 billion, respectively. During the period under review, NPLs of FBs declined by Rs 161 million to Rs 3 billion.
Quarter-on-quarter basis analysis reveal that an increase of Rs 13 billion was registered in first quarter (January-March 2016) and Rs 15.62 billion in the second quarter (April-June 2016).
"With continuous growth in NPLs, credit risk will be a major challenge for financial sector of Pakistan and they will be required to take special and long-term measures to reduce the NPLs," bankers said.