Non-Performing Loans Rise by Rs 60 Billion in Q2 FY 16-17

The figure of fresh non-performing loans (NPL) has increased by Rs. 60 billion. The agriculture sector provides the bulk of the fresh NPLs.

This was stated in State Bank of Pakistan’s (SBP) 2nd quarter review of Financial Year 2016-17.

The review says that overall, the banking sector in Pakistan has performed smoothly without any major disruptions during the quarter as most of the Financial Soundness Indicators (FSIs) have stayed in a comfortable zone.

“On account of rise in Fresh NPLs, net NPLs in the reviewed quarter have also inched up by 13.7 percent (a YoY decline of 10.3 percent) as most of the increase has been in OAEM category against which no provision is required.” – SBP Report

SBP says that the infection ratio (the proportion of NPL to the total loan portfolio) could have even been lower if they had excluded the NPLs from specialized banks (SBs). Excluding SBs, the commercial banks’ infection ratio has improved by 8.7 percent during Q2 of calendar year 2017 from 9.6 percent in Q1CY17.

“Most of the NPLs from SBs pertain to loans from the agriculture sector. They have come on as a result of lower commodity prices, disputes over payments between growers and mill owners, pest attacks and rescheduling of loan installments in calamity affected areas, etc.

The rise in fresh NPLs, however, has been partially offset by higher cash recoveries which stand around Rs 42 billion,” as per SBP’s report.

Asset Quality of Banking

Thanks to a robust growth in advances, NPL-to-Advances (i.e. infection) ratio has continued its downward trajectory. It has slid down to 9.3 percent in Q2CY17 from 9.9 percent in Q1CY17. The infection ratio was 11.1 percent in Q2CY16.

The volume of Non Performing Loans (NPLs) has, however, inched up by to 1.8 percent (PKR 11.0 billion) during Q2CY17.

Rise in NPLs has resulted in non-performing assets (NPAs) from the banking sector to increase by 2.1 percent during Q2CY17 as compared to 0.4 percent in Q1CY17.

NPLs explain 78.1 percent (PKR 11.0 billion) of the total increase in NPAs (PKR 14.2 billion). Classified investments and other assets account for 15.2 percent (PKR 2.2 billion) and 6.7 percent (PKR 1.0 billion) of total growth in NPAs, respectively.



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