Bankers said that the massive increase in the NPLs is not a good sign and may pose new challenges for banking sector. They said that slowdown in economic activities and tight monetary policy has largely contributed in massive surge in overall NPLs. The SBP has adopted a tight monetary policy stance for the last two years to control the inflation.

According to State Bank of Pakistan's (SBP), NPLs of the banking industry (including banks and DFIs) were escalated by Rs 81.667 billion during the Jan-Dec of CY19. NPLs of banks and DFIs surged to Rs 776.085 billion in December 2019 compared to Rs 694.408 billion in December 2018. The net NPLs to net loans ratio was also increased to 1.74 percent by end CY19 compared to 1.42 percent in CY18.

Bankers said that continued upward trend suggests that banks are required to develop a long term strategy to curtail the rising NPLs as any further drop in cash recoveries may increase the bad loans. They said that still there is no major risk to the industry as banks' most of investment is in low credit risk government securities.

The detailed analysts revealed that entire NPLs were occurred in the first half of last calendar year. NPLs of Banks and DFIs were mounted up by Rs 88.5 billion to Rs 783 billion in Jan-June of CY19. However, during the second half (July-Dec) of CY19, overall NPLs declined by Rs 6.9 billion to reach Rs 776.085 billion in December 2019.

The rise in fresh NPLs is not broad-based and is mainly contributed by Public Sector Banks and Local Private Banks, while as against the industry trend, the NPLs of foreign banks and specialized banks witnessed downward trend. NPLs of all banks increased by 12 percent to Rs 761.118 billion in December 2019 up from Rs 679.744 billion in December 2018. During the period under review, NPLs of DFIs surged by 2 percent to Rs 14.967 billion.

According to the SBP's statistics, NPLs of Public Sector Banks and Local Private Banks were rose by 10 percent and 15 percent to Rs 234.621 billion and Rs 469.366 billion respectively.

During the last calendar year, NPLs of foreign banks were fell 2.4 percent to Rs 2.772 billion. In addition, NPLs of specialized banks were stood at Rs 54.360, down by Rs 1.22 billion in CY19. Overall cash recovery of Banks and FDIs against NPLs was increased to Rs 86.703 billion in CY19 compared to Rs 79.394 billion in CY18, depicting an increase of Rs 7 billion.

Copyright Business Recorder, 2020