With an increase of six percent, non-performing loans (NPLs) of banks and DFIs rose to a new high level of Rs 629 billion at the end of September 2011, owing to slow economic activity and high interest rate.

Non-performing loans (NPLs) are loans and advances whose mark-up/interest, or principal, is overdue by 90 days or more, from the due date.

The State Bank of Pakistan (SBP) said that NPLs of banks and DFIs continued to grow and registered a hefty increase of 6.48 percent in the third quarter (June-September) of current calendar year 2011 (CY11).

Economists and analysts said it is an alarming situation for the entire financial sector and added that they believed that high interest rate, followed by tight monetary policy, power outrages, worst law and order, and taxation policies were responsible for the high rise in the NPLs.

They said that although the banking sector is still reluctant to expand financing to the private sector due to the rising default cases, the growth of NPLs is still on upper side. After getting high NPLs from private sector the financial market prefers to invest in government papers, they added.

According to SBP, total NPLs crossed Rs 600 billion mark in the third quarter of CY11 and surged to Rs 629.555 billion as on September 30, 2011 compared with Rs 591.226 billion as on June 30, 2011, depicting a surge of Rs38.329 billion or 6.48 percent in July-Sep of CY11. The increase was much higher than second quarter of CY11, as an increment of Rs 5.54 billion was registered in NPLs in the second quarter of CY11. The increase during the July-Sep 2011 is even higher than first quarter, in which NPLs was surged by Rs 22 billion.

Major boost was witnessed in the NPLs of banks, while the NPLs of DFIs registered slight increase. NPLs of banks recorded increase Rs 37.371 billion, and reached Rs 613.219 billion in September against Rs 575.848 billion of June this year.

During this period, NPLs of DFIs rose by Rs 958 million to Rs 16.336 billion from Rs 15.378 billion.

Detail analysis showed that NPLs of almost all categories of banks, including public sector, local private, foreign and specialised banks, witnessed upward trend.

During this period, NPLs of public sector banks went up by Rs 26.299 billion to Rs 193.214 billion from Rs 166.915 billion. Local private banks had the largest share in total NPLs, as NPLs of private banks reached Rs 377.334 billion in Sep 2011 from Rs 368.561 billion in June 2011, up by Rs 8.773 billion.

NPLs of specialised banks posted an increase of Rs 1.77 billion to Rs 35.441 billion from Rs 33.671 billion. With an increase of Rs 529 million, NPLs of foreign banks surged to Rs 7.23 billion from Rs 6.701 billion.

During the period under review, net NPLs to net loans were also on higher side and reached 6.53 percent by end of third quarter from 5.48 percent in second quarter, depicting an increase of 1.05 percent in three months.

According to SBP, last quarter data was based on un-audited accounts submitted by banks and DFIs.

SOURCE: BUSINESS RECORDER