Bad loans surge by Rs 33 billion in the third quarter of 2010

KARACHI: The non-performing loans of banks have registered the highest increase in the third quarter of 2010 compared to those of last five quarters.
The NPLs for all banks surged by Rs 33 billion and aggregated to Rs 509 billion in the third quarter of 2010 (July-September), while the average accretion under this category for the past five quarters was Rs 19 billion. The gross non-performing loans of banks had swelled to Rs 476 billion in June 2010 and further surged to Rs 509 billion in September 2010 compared to Rs 422 billion in September 2009.
The NPLs to advances ratio climbed to 14.26 percent which meant an annual rise of 190 basis points and a quarterly increase of 112 bps. The net provisions augmented by only Rs 15.70 billion in the third quarter of calendar year 2010 and stood at Rs 361 billion.
The average ratio dwindled to 71 percent till September 2010 compared to 72.6 percent in June 2010. The lower coverage ratio indicated that higher provisions were plausible in the fourth quarter of 2010. Advances of banks showed a decline of Rs 54 billion in the third quarter of 2010 and fell to Rs 3.569 trillion in September, from Rs 3.623 trillion in June (second quarter of 2010).
According to the break-up, the most significant rise was witnessed in local private banks, wherein the NPLs rose by Rs 23 billion in the third quarter (compared to an increase of Rs 5.20 billion in the second quarter of 2010).
In addition, NPLs for public sector banks augmented by Rs 6.5 billion in the period, following reversals of Rs 4.3 billion in the June quarter. Data from the NPLS reflected a high risk of loan losses in the coming quarters, as evident from the increased level of bad loans in the period under review.
A rising trend of interest rates, initial flood related losses and defaults by certain large corporate entities could be key factors for this massive jump.
Capital market’s analysts believed that the recent catastrophic floods have accumulated the non-performing loans as floods played havoc in Khyber Pakhtoonkhwa, Punjab and Sindh.
Several branches of banks have also been disbanded as they were badly damaged by the floods, they said. The big and medium-size banks have heavily suffered and their network of branches have faced a blow in the flood-hit areas.