March-end: Non-performing loans register little change
Stock in the country’s banking sector amounted to Rs619b
Stock in the country’s banking sector amounted to Rs619b. PHOTO: BLOOMBERG
KARACHI:
Non-performing loans (NPLs) registered little change over the last 12 months despite an increase of 10.3% in net loans over the same period.
According to the central bank’s quarterly compendium on banking statistics up to March 2016, the stock of NPLs in the country’s banking sector amounted to Rs619 billion at the end of March, down by just Rs1 billion from a year ago.
However, NPLs increased 2.3% in the first three months (Jan-Mar) of 2016 over the preceding quarter. Net loans extended by all banks amounted to Rs4.7 trillion at the end of March, down 0.7% on a quarterly basis.
Known as the infection ratio, the share of NPLs in total loans of the banking sector at the end of March was 11.7%, down from 12.8% a year ago.
The infection ratio can be misleading at times because a loan typically takes some years before it becomes non-performing. A bank can lend aggressively in the short term to increase its level of outstanding advances, effectively reducing the share of its NPLs or the infection ratio. However, the apparent decline in the infection ratio in this scenario will be a result of growing loans, not shrinking NPLs.
Out of the six major segments that receive advances - i.e. corporate, agriculture, consumer, small and medium enterprises (SME), commodity financing and staff loans - the highest infection ratio was reported in the SME sector at the end of March.
More than 28% of advances extended to SMEs have been categorised as NPLs. The infection ratio in the SME sector has gone down though, as it stood at 32% at the end of March 2015. The share of advances extended to SMEs within the banking sector’s total advances was just 5.5% at the end of March.
The infection ratio in the advances extended to the corporate sector remained 12.3%, which is higher than the overall infection ratio of 11.7% recorded at the end of March. The corporate sector is the biggest borrower, with more than a two-thirds share in the total advances of the banking sector.
The infection ratios at the end of March in the agriculture sector, consumer sector, commodity financing and staff loans remained 12.3%, 10.5%, 1% and 1.3%, respectively.
Within the consumer sector, loans for mortgage and consumer durables recorded the infection ratios of 22.8% each at the end of March.
A sector-wise breakdown of NPLs reveals the highest infection ratio was recorded in the textile sector (26.3%), which was followed by automobile/transportation (17.2%), shoe and leather garments (16.3%), electronics (15.1%) and cement (11.58%) sectors.
The minimum infection ratios were recorded in insurance (0.1%), sugar (4.9%) and production/transmission of energy (5.5%) at the end of March, SBP data shows.
Published in The Express Tribune, June 19th, 2016.
Non-performing loans (NPLs) registered little change over the last 12 months despite an increase of 10.3% in net loans over the same period.
According to the central bank’s quarterly compendium on banking statistics up to March 2016, the stock of NPLs in the country’s banking sector amounted to Rs619 billion at the end of March, down by just Rs1 billion from a year ago.
However, NPLs increased 2.3% in the first three months (Jan-Mar) of 2016 over the preceding quarter. Net loans extended by all banks amounted to Rs4.7 trillion at the end of March, down 0.7% on a quarterly basis.
Known as the infection ratio, the share of NPLs in total loans of the banking sector at the end of March was 11.7%, down from 12.8% a year ago.
The infection ratio can be misleading at times because a loan typically takes some years before it becomes non-performing. A bank can lend aggressively in the short term to increase its level of outstanding advances, effectively reducing the share of its NPLs or the infection ratio. However, the apparent decline in the infection ratio in this scenario will be a result of growing loans, not shrinking NPLs.
Out of the six major segments that receive advances - i.e. corporate, agriculture, consumer, small and medium enterprises (SME), commodity financing and staff loans - the highest infection ratio was reported in the SME sector at the end of March.
More than 28% of advances extended to SMEs have been categorised as NPLs. The infection ratio in the SME sector has gone down though, as it stood at 32% at the end of March 2015. The share of advances extended to SMEs within the banking sector’s total advances was just 5.5% at the end of March.
The infection ratio in the advances extended to the corporate sector remained 12.3%, which is higher than the overall infection ratio of 11.7% recorded at the end of March. The corporate sector is the biggest borrower, with more than a two-thirds share in the total advances of the banking sector.
The infection ratios at the end of March in the agriculture sector, consumer sector, commodity financing and staff loans remained 12.3%, 10.5%, 1% and 1.3%, respectively.
Within the consumer sector, loans for mortgage and consumer durables recorded the infection ratios of 22.8% each at the end of March.
A sector-wise breakdown of NPLs reveals the highest infection ratio was recorded in the textile sector (26.3%), which was followed by automobile/transportation (17.2%), shoe and leather garments (16.3%), electronics (15.1%) and cement (11.58%) sectors.
The minimum infection ratios were recorded in insurance (0.1%), sugar (4.9%) and production/transmission of energy (5.5%) at the end of March, SBP data shows.
Published in The Express Tribune, June 19th, 2016.