Non-performing loans surged 23pc in FY19, Senate body told

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ISLAMABAD: The non-performing loans (NPLs) of the banking sector have increased by more than 23pc during the fiscal year ending June 30, 2019 (FY19).

Testifying before a parliamentary panel on Monday, the State Bank of Pakistan reported that the stock of NPLs in the banking sector increased to Rs768 billion in FY19, depicting a year-on-year rise of 23.2pc or Rs144.4 billion from Rs623.6 billion in FY18.

The SBP team, led by SBP Deputy Governor Jamil Ahmad, also informed the Senate Standing Committee on Finance and Revenue, headed by former Senate chairman Farooq H Naik, that the gross NPLs to total loans of the banking sector also moved up to 8.8pc in June 2019 from 7.9pc a year earlier.

“Most of this increase was due to energy and sugar sectors, as they together explained more than 50pc of the rise,” the SBP team reported in its presentation. “In the energy sector, most of the rise in NPLs pertained to the public sector”.

With an increase in fresh NPLs during FYI9, Provision Coverage Ratio (Provisions to NPLs) declined to 78.4pc in FY19. Consequently, net NPLs to net-loan ratio (NPLR) inched up to 2.1pc. However, the current level of NPLR is lower than the last 5-year average of 2.4pc, indicating contained credit risk at present.

Several factors contributed to the rise in NPLs, including the overall slowdown in the economy, tightening of macroeconomic conditions and constrained cash flow of corporate entities. Moreover, late start of sugar crushing season, water shortages, and drought condition affected crop yields, which hindered farmers’ repayment capacity.

The SBP officials informed that to manage excessive risktaking by banks and particularly the credit risk, the central bank, through its prudential regulations, prescribed various exposure limits for single/ group borrowers, aggregate large exposures, contingent liabilities, unsecured financing facilities and exposure against shares/term finance certificates (TFCs). In addition, it had put in place regulations for classification and provisioning of non-performing loans in line with the unemotional best practices.

The meeting was attended by Senators Syed Shibli Faraz, Mohsin Aziz, Mian Muhammad Ateeq Shaikh, Muhammad Akram and senior officers from the ministries of finance and economic affairs.

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