Non-Per­form­ing Loans

The Pak Banker - - 4editorial -

No doubt loans is­sued by the banks to com­pa­nies, in­di­vid­u­als play a ma­jor role and are key tools to ac­cel­er­ate the busi­ness ac­tiv­i­ties in the coun­tries. But it is the moral duty of loans ben­e­fi­cia­ries to pay it back hon­estly ac­cord­ing to the set­tled sched­ules. The State Bank of Pak­istan in its quar­terly per­for­mance re­view of the bank­ing sys­tem for the quar­ter ended Septem­ber 2010, has stressed upon banks to de­vise strate­gies to deal with the Non-Per­form­ing Loans (NPLs) so that promis­ing busi­nesses, which are fac­ing tran­si­tory dif­fi­cul­ties due to a con­strained macro en­vi­ron­ment, con­tinue to con­trib­ute in eco­nomic growth. The re­port is­sued by the cen­tral bank pointed out that the growth in NPLs, which de­cel­er­ated dur­ing the first two quar­ters of CY10, grew by 7.4 per­cent dur­ing the quar­ter un­der re­view reach­ing Rs 494 bil­lion as banks' lend­ing port­fo­lio, to some ex­tent, was ef­fected by re­cent un­prece­dented floods and tor­ren­tial rains. State Bank has re­sponded to the changed and chal­leng­ing cir­cum­stances and ra­tio­nalised its reg­u­la­tory re­quire­ments on loan loss recog­ni­tion in re­spect of ad­vances in flood-af­fected ar­eas. As­set base of the bank­ing sys­tem con­tracted by 2.3 per­cent to Rs 6,626 bil­lion which was in line with the trend for the Ju­lySeptem­ber quar­ter. Shrink­ing of the as­set base, par­tic­u­larly ad­vances re­sulted in a de­cline in size of the riskweighted as­set (RWA) over the quar­ter. It is fore­casted in the re­port of cen­tral bank that the usual in­ven­tory build up, par­tic­u­larly by Kharif crop-based in­dus­tries, dur­ing the last cal­en­dar quar­ter will cre­ate ad­di­tional de­mand for bank credit. "Al­though the banks are ex­pected to re­main liq­uid; the height­ened de­mand for credit from the pub­lic sec­tor will mean that the banks abil­ity to fi­nance ad­di­tional pri­vate sec­tor loans will be pred­i­cated upon mo­bil­i­sa­tion of fresh de­posits and re­tire­ment of com­mod­ity fi­nance by govern­ment-owned agen­cies which con­tinue to be ex­tremely high." Banks will need to re­duce their large port­fo­lio of govern­ment paper and lend­ing to the pub­lic sec­tor agen­cies so as to re­duce their sov­er­eign ex­po­sure as well as to make credit avail­able to the pri­vate sec­tor for main­tain­ing eco­nomic growth, and thereby en­hance and di­ver­sify rev­enues of the bank­ing sys­tem.

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