NPLs drop to 8.8% in July-September 2021

Improvement comes on back of rise in loans, lower delinquencies: SBP report

KARACHI:

The banking sector’s credit risk indicators have improved as gross non-performing loans (NPLs) of commercial banks decreased to 8.8% in July-September 2021 from 9.9% in the same quarter of previous calendar year.

According to the State Bank of Pakistan’s (SBP) quarterly compendium on banking statistics published on Tuesday, the net NPLs ratio declined to 1.1% during the July-September 2021 quarter from 1.7% a year ago, indicating a lower residual risk to solvency from delinquent loans.

“The improvement came on the back of a rise in loans and lower fresh delinquencies,” the SBP statement said.

The provisions coverage ratio also improved to 88.9% in July-September 2021 as compared to 84.6% a year earlier due to increase in provisioning against NPLs.

The data showed that assets of the sector rose 2.17% during the quarter under review over the last quarter, (20.9% growth on a year-on-year basis). This surpassed the 0.44% growth achieved in the corresponding period of previous year, the statement said.

The expansion has been particularly contributed by the domestic private sector advances, which increased 3.8% during the quarter against a contraction of 0.5% during the same period of previous year. On a year-on-year basis, they increased 16.6%.

On the funding side, deposits increased 0.36% during the July-September 2021 quarter as compared to 0.8% growth a year earlier. On a year-on-year basis, deposits achieved an encouraging growth of 16.9%.

“The increase in advances remained broad-based reflecting a general recovery in economic activity as well as the impact of higher input prices,” said the SBP statement.

The growth in credit to the private sector would prop up the low credit incidence in the country, as measured by the domestic private credit to GDP (gross domestic product) ratio, it added. “SBP’s refinance schemes announced in the wake of Covid-19, particularly the Temporary Economic Refinance Facility (TERF), have been supporting the private sector credit growth in the last few quarters.”

Construction and housing finance emerged as notable sectors, which were witnessing a healthy increase in credit offtake, it highlighted.

Initiatives that enhanced the overall credit to the housing sector included the SBP’s assigned targets for housing finance to banks in July 2020 and the markup subsidy scheme “Mera Pakistan Mera Ghar” announced in October 2020.

Published in The Express Tribune, January 5^th, 2022.

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