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Slowdown causes sharp rise in NPLs: SBP

December 24, 2009

According to the State Bank of Pakistan’s (SBP) Quarterly Performance Review the banking system witnessed slow growth and a sharp increase in non-performing loans (NPLs) during the quarter ended on September 30, 2009. This was mainly due to the slowdown in economic activity and the associated deterioration in business activity.

The Review reveals that Return on Asset (ROA), Return on Equity (ROE), deposit base, loans growth, assets growth and equity growth presented a negative trend, while a sharp increase in NPLs has been registered.  It stated: “The quarter under review witnessed an inch up in infection rate as the NPLs accumulated at relatively faster rate of 6.0 percent to Rs422 billion.”

The deposits base, which grew significantly during previous quarter, contracted over the quarter under review. Overall deposits declined to Rs 4,483 billion in September from Rs 4,563 billion in June this year, representing a decrease of Rs 80 billion during the third quarter of calendar year 2009.
According to the report, liquidity also remained under pressure, “However, reduction in deposit base and slow growth in monetary aggregates (M2) coupled with banks’ increased investments in government papers kept the market liquidity under strain for most part of the quarter under review.”
The review stated that in the future NPLs will remain the primary challenge: “Going forward, the heightened credit risk and increase in infected loan portfolio will remain the major challenge for the banking system.”
However, the report emphasize the inherent resilience within Pakistan’s banking sector, “Nevertheless, the system shows strong capacity to withstand unusual shocks in the major risk factors and chances of any systemic risk remains contained.”

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