Bad by default

The rate of defaults on the bank loans in the financially-troubled country has swelled beyond six percent of the banks’ net credits, shows the official data.
According to central bank figures, during last quarter of FY12, April-June, the Non-Performing Loans (NPLs) of the banks and development finance institutions (DFIs) swelled to Rs 653 billion compared to Rs 625.44 billion of the preceding quarter, January-MarchFY12.
Percentage-wise, the rate of defaults on bank loans amounts to 6.15 percent which the bankers deem as higher that they opine warrants more provisioning by the lenders, viz the banks and DFIs. The bankers propose that the banks’ NPLs to their net loans should remain well below five percent.
This surge in the bad debts of the banks and DFIs is masterly driven by borrowers’ defaults on the public sector loans. “This figure has been primarily inflated by substantial increase of 15 percent under the NPLs head of the public sector banks,” viewed InvestCap analyst Mazhar A. Sabir.
According to State Bank, during the period under review the public sector banks saw their bad debts inflating to an alarming 12.78 percent or Rs 196.399 billion from Rs 171.422 billion or 10.47 percent in last quarter. This marked a quarter-on-quarter (QoQ) increase of Rs 24.977 billion or 14.5 percent in the bank’s NPLs.
Given the experts warning to the banks against not to have the rate of NPLs above 5 percent, this upsurge to a double-digit, 12.78 percent, in creditors’ defaults on the public sector loans stand more worrisome.
On the other hand, the private local banks kept their bad debts subdued by what the analysts said “commendable recoveries” during the review period. The NPLs of the local private banks slid to Rs 395 billion from Rs 398 billion of the previous quarter. While that of the foreign banks, specialized banks and DFIs rose, respectively, to Rs 7.88 billion from Rs 7.76 billion, Rs 35.78 billion from Rs 31.81 billion and Rs 18.20 billion from Rs 16.68 billion.
“Despite contributing as much as 61 percent to the total industry NPLs, the private banks’ NPLs growth was largely flat while the foreign banks’ NPLs recorded a meager 1.5 percent growth,” observed Mazhar.
On the recovery side, overall the banks performed well except the DFIs which could manage to recover Rs 332 million compared to last quarter’s Rs 372 million. Of the total Rs 20.664 billion recovered cash, the public sector banks made Rs 3.254 billion, local private banks Rs 13.747 billion, foreign banks Rs 155 million and specialized banks Rs 3.177 billion against their previous quarter’s recoveries amounting, respectively, to Rs 2.099 billion, Rs 10.222 billion, Rs 83 million and Rs 1.542 billion.
The analysts termed the cash recoveries by the lenders as laudable which they said restricted the cumulative growth in the commercial banks’ bad debts to 3.8 percent or Rs 599 billion during the said quarter.
“Improved cash recoveries in NPLs can be attributed to relatively better surveillance by the banks,” said Mazhar adding the recent 150 basis point rate-cut by the central bank may augur well for the banks’ cash recoveries. “Borrowers are foreseen to reschedule their debts at lower rates,” the analyst said. Mazhar said the infection ratio of all banks had remained virtually stagnant at 17.4 percent during the month of June due to flat trend witnessed in the advances head. Moreover, the analyst said, continued diversion of the banking sector deposits towards investments amid high credit risks due to above mentioned factors are expected to keep the banking sector infection ratio in the double digits.