Non Performing Loans From Textile Sector Are Hurting Profitability of Banks

Non Performing Loans (NPL) from the textile sector has started hurting the profitability of the country’s banking sector.

The newly appointed Governor State Bank of Pakistan (SBP) Tariq Bajwa had to address this challenge in his first introductory meeting with the Presidents and Chief Executive Officers of banks in the country recently.

Details of the Meeting

Governor (SBP) Tariq Bajwa presided over the meeting with Presidents and Chief Executive Officers of all commercial banks and Islamic Banks at SBP’s office in Karachi. The Governor welcomed and thanked the representatives of the banks for their participation in the meeting.

During the meeting, bankers highlighted the issue of textile sector NPLs. Bankers told that the textile sector was facing a hard time. Many textile companies practically shutdown their operations and those still operating right now are unable to make use of their capacity in full.

Continued decline exports of the textile sector meant that they are not able to pay back bank loans, with NPLs on the rise. This in turn is hurting the banks’ profits and balance sheets.

There is a need for the SBP Governor to announce a policy for the restructuring of textile sector loans.

After hearing the bank representatives, the Governor ordered the concerned departments to collect data regarding textile sector loans, NPLs and the type of loans (working capital, Machinery purchase). Mr. Bajwa also ordered that a policy for textile sector should also be drafted.

Earlier Governor SBP Tariq Bajwa shared his priority areas of promoting agricultural financing, facilitating SMEs’ in their access to financial services and enhanced focus on addressing the disparities emanating due to limited financial intermediary role and very small footprint of the banking industry in the province of Balochistan.

“With the country’s available natural resources coupled with support from the banking sector in the shape of adequate and targeted financing to small farmers, the agriculture sector offers tremendous opportunities for achieving higher economic growth.” Tariq Bajwa added.

Small and Medium Enterprises (SMEs) Need to Be Strengthened

Governor SBP further observed that SMEs are the backbone of the industrial sector.  In Pakistan, SMEs are a neglected sector. The SBP along with the commercial banks need to proactively work for the development of the SMEs. Mr. Bajwa also showed his commitment to promote Islamic banking by committing to make efforts for resolving the industry’s major issues including issuance of Government Sukuk for its liquidity management.

The CEOs and Presidents of banks congratulated the SBP Governor on his appointment and committed to work with SBP in priority areas. They shared their views with the Governor on the overall economic situation, opportunities available, and challenges faced by the banking industry. They further stated that they were looking forward to the cooperation of SBP and the Federal Government for resolution of those challenges.