Non-performing loans rise most in six quarters

Most significant increase seen in local private banks.

KARACHI: Non-performing loans (NPLs) for all banks combined rose by Rs32 billion between July and September to reach Rs494 billion – the largest jump in six quarters, according to data released by the State Bank of Pakistan (SBP).

The most significant rise was witnessed in the NPLs of local private banks, which rose by Rs23 billion during the period.

Meanwhile, NPLs for public sector banks rose by Rs6.5 billion in the third quarter of the year (July-September), after recording reversals of Rs4.3 billion in the previous quarter.

Resultantly, the net NPL ratio for all banks combined climbed to 4.5 per cent from last quarter’s 3.9 per cent.  The data reflects the risk of loan losses being high in upcoming quarters as evident from the increased level of bad loans in the period under review, said JS Global Capital analyst Mustufa Bilwani.

Rising interest rates and the initial flood related losses can be two key reasons for this massive jump, added Bilwani. Defaults by certain large corporations may also have been a causal factor, he added.

Spreads firm

Banking spreads have improved by eight basis points to 7.49 per cent on a yearly basis in October. Meanwhile, lending rates declined by 35 basis points.

Healthy deposit growth is expected this year through an upward rate revision of the National Savings Scheme, forecasts BMA Capital analyst Abdul Shakur.

Backed by persistent inflation and government borrowing requirements, market yields and lending rates are expected to continue northward, hence banking spreads are projected to maintain the 7.4 per cent to 7.5 per cent level till December, added Shakur.

Published in The Express Tribune, November 17^th, 2010.