Non-Performing Bank Loans Rose to Rs. 851 Billion in June 2021

The non-performing loans of the banking industry surged to nearly Rs. 851 billion by the end of June 2021, with a negligible increase in the second quarter of the year.

Data by the State Bank of Pakistan showed that the non-performing loans (NPLs) in the banking sector had surged to Rs. 850.7 billion in the closing of the second quarter of 2021 as compared to the bad debts that had stood at Rs. 850.3 billion in the same year.

The infection ratio decreased to 8.9 from 9.3 as the advances of the banking sector surged to Rs. 9.56 trillion from Rs. 9.1 trillion by the end of the second quarter from the first quarter, according to the data.

The banks were able to contain bad debts during the period but these companies made recoveries against the NPLs from the customers in various sectors, which depicted the improvement of the infection ratios. The phenomenon is rarely witnessed in the industry, and should be continued to improve banks’ assets qualities.

However, bank companies need to be very cautious to sustain the positive development in the next quarters, taking into view the banking regulator’s introductions of various preferential loan schemes in the recent past, such as the  SME Assan Finance Scheme.

Banks’ Infection Ratios in Different Sectors

The following are the infection rates of various client segments reduced from the first quarter to the second quarter of 2021:

  • The corporate sector reduced to 9.6 from 9.8
  • The agriculture sector declined to 18 from 21.8
  • Commodity finance reduced to 0.8 from 1
  • Staff loans stand flat at 1.3
  • The SME sector increased to 17.6 from 17.3

Other sectors such as textile, agribusiness, automobile, sugar, cement, and insurance also had a health drop in the infection ratios. They availed of financing facilities from foreign, public, and private sector banks comprising 22 institutions.

The stability of the policy rates at seven percent for considerably longer periods helped banks customers pay off their outstanding debts besides some sectors that had improvements in their business activities and cash flows.

On the contrary, the NPLs of the microfinance banks recorded an unusual increase in the second quarter of 2021.