IMF forecasts rise in banking industry’s NPLs
International Monetary Fund (IMF) has predicted that the banking industry's profitability may decline further in the coming months due to the rising NPL provisions, the present discount rates and floor on saving rates.
IMF indicated in its report released to review the macroeconomic situation of the country said that the expected improved performance of Pakistan's economy may lead to swelling Nonperforming Loans (NPLs) while the GDP growth is expected to settle between 3.1 percent to 3.7 percent in the current financial year.
"There is a close negative relationship between the performance of economy and buildup of NPLs," IMF said.
The NPLs reached the level of Rs 131. 8 billion by the end of 2013, which declined from Rs 148 billion reported in September 2013 as per statistics of State Bank of Pakistan.
The profitability of the big banks declined significantly in 2013 due to a fall in interest rates and high provision of NPLs accumulating in the banking industry.
The commercial banks' balance sheets are also highly exposed to government securities (representing 37 percent of banks' total assets) with shorter maturities, so a fiscal crisis-if it materialized-would have an adverse impact on banks' balance sheets.
Though the financial sector is not in imminent danger, banks remain vulnerable to deterioration in the overall macroeconomic environment, IMF stated while pointing out NPL's situation having a 13 percent weight in the banking industry.
Deposits have grown at a slower pace (14 percent yoy) due to low real interest rates, better returns on equity and real estate, and increase in withholding tax on cash withdrawals. The banking industry's asset quality indicators improved slightly due largely to the payment of the power sector's circular debt.