IMF fore­casts rise in bank­ing in­dus­try’s NPLs

The Pak Banker - - FRONT PAGE -

Muham­mad Yasir

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.

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