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NPLs double in 2 years to Rs432bn

NPLs double in 2 years to Rs432bn

The State Bank (SBP) has identified  the increasing volume of infected loans  as  a cause for concern for Pakistan’s banking industry.  “The Non Performing Loans (NPLs) of the system had been showing consistent and rapid increase for the last one and a half years or so and almost doubled since calendar year 2007,” stated the SBP’s Quarterly Performance Review of the banking system released on 22nd March.

However, the SBP reassured that the banking sector is sufficiently resilient to face shocks: “The results of stress tests reflect system’s strong capacity to endure extraordinary shocks in major risk factors and avert the emergence of any systemic risk.”

According to the report, the banking industry’s NPLs have surged to Rs432 billion. Going forward, the report identified NPLs as the significant challenge to Pakistan’s banking sector: “In the coming quarters, the heightened credit risk and rising portfolio of infected loans will remain the major challenge for the banking system.”
However, the repot noted that the pace of NPLs slowed down from October to December 2009 with just a 2% increase in December 2009.
The report found that the increase in NPLs originated mainly from local banks with a significant increase in the middle tier and small sized banks.The report also observed a 4.16% increase in private sector lending by commercial banks during the Oct-Dec quarter of 2009-10 fiscal year (FY10). This increase was well supported by expansion in the deposit base which rose by 6.8%, while due to a 10% growth in investments (62.3% Year-on-Year), the asset base of the system increased by 6.9% (16% Y-o-Y). Unlike previous quarters, the increase in credit off-take was widely shared by different sectors of the economy.

But greater credit demand from Public Sector Enterprises (PSEs), pick up in private sector credit allied with relatively low activity in the inter-bank market kept market-based liquidity under strain for most part of the quarter. “The traditional slowdown of first calendar quarter is likely to dampen the growth of banks,” stated the report.

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