Non-performing loans (NPLs) disbursed by the banking industry surged by more than Rs. 70 billion in 2023, the latest data by the State Bank of Pakistan (SBP) showed.
In 2023, bad loans by the sector surged to Rs. 1.009 trillion, up by Rs. 71.3 billion compared to Rs. 938 billion in the same period last year.
Commercial banks dominated the space with most bad loans released to defaulters during the previous calendar year. Data showed NPLs by commercial banks increased by 8 percent to Rs. 956 billion compared to Rs. 883 billion in 2022.
Local private banks came in second with bad loans of Rs. 634 billion, up 16.5 percent compared to Rs. 545 billion in the same period last year. Meanwhile, public sector banks disbursed Rs. 320 billion in bad loans, which have decreased slightly from Rs. 336 billion reported in 2022.
Foreign banking operations in Pakistan played it safe in 2023, having disbursed just Rs. 633 million in bad loans, down by 66 percent compared to Rs. 1.86 billion in the previous year.
Development Finance Institutions (DFIs) attributed Rs. 15 billion to bad loans in 2023, Rs. 510 million more than in 2022.
SBP data showed cash recovery against non-performing loans clocked in at Rs. 33 billion for the quarter that ended on December 31, 2023, roughly the same compared to recoveries in the same period last year.
In light of this, Pakistan’s hopes for a rapid economic recovery remain futile as banks struggle with bad debt. While controllable, this surge is limiting their capacity to extend loans and support economic growth at current lending rates.
SBP’s steep interest rate, which has remained at 22 percent since June 2023, worsens the problem as it undermines borrowers’ ability to repay loans. As a result, loan repayment concerns loom large.
It is understandable present default is due to high rate of mark up and sluggish economic conditions. But it will be interesting to do analysis of ageing of these defaulted loans. Many of these loans are not performing since many decades. Owner of these defaulted has given up their hopes to once again start their business due to variety of reasons,like, lack of market, shortage of working capital, management incompetencies etc.
We all knows bank don’t lend their money against collaterals ( fixed/ current assets). Sometime personal guarantee are also taken from owners/ directors. If defaulted amount is in trillion than value of collaterals must be much more than that as as bankers always lend after getting cushion on assets against their loans. But why bankers are not able to enforce bankruptcy against borrowers and recover their money by selling collaterals? It is because of litigations by borrowers. Money received from defaulted loans will directly add to the bottom line of banks profit and loss as bankers have taken provisions against these defaults after 90 days of default. Huge amount is stuck up in defaulted assets . Buyers of such assets will start business and give employment to employees/ by starting new businesses will contribute to GDP. Banks also want to get rid of these defaulted loans as they have to spend money to pay lawyers to fight these cases.
Need of the hour is to decide these cases in priority for that special legislation like forming of tribunal with new judges might be appointed that give verdict in weeks if not in days.