The banks’ apparent tilt towards investment in the risk-free government securities makes sense if the anti-growth tendency is analysed in the backdrop of increasing defaults on the profit-conscious banks’ advances by
individual and corporate borrowers.
Non-performing loans
Analysts believe that persistent inflationary pressures have rendered the borrowers unable to repay their debts from commercial banks which, according to SBP data, calculated their accumulative Non Performing Loans (NPLs) at Rs573.524 billion up to the third quarter of FY11.
Corporate sector defaults on
A sector-wise breakup of banks’ NPLs show that the corporate sector had defaulted on Rs376.588 billion, the Small and Medium Enterprises sector on Rs101.198 billion, the agriculture sector on Rs33.296 billion and the consumer sector on Rs44.084 billion. In additions to it, the banks also lost Rs6.078 billion, Rs1.288 billion, Rs10.993 billion, respectively, on account of commodity financing, staff loans and other miscellaneous loans.
And that is why the banks seem reluctant to offer loans to the recession-hit non-government segments, particularly the consumer sector. Central bank figures depict that banks’ advances under consumer financing were depleting at a pace quite disproportionate to their NPLs towards individual borrowers.
Bad debts
A quarterly compendium of the State Bank of Pakistan (SBP) reveals that the banks’ bad debts on account of consumer financing had surged to Rs44.084 billion during January-March FY11.
Defaults accumulated in 2010
This exhibits an increase of 0.4 per cent or Rs205 million over the last quarter, October-December FY10, when the individual borrowers’ defaults had accumulated to Rs43.879 billion. During the period under review, the infection ratio for banks’ consumer financing surged from 16.9 per cent to 17.5 per cent.
Bank loans in consumer sector fall by 2.8 pc
In view of soaring defaults, the banks disbursed advances worth Rs252.210 billion during the said quarter, registering a decrease of 2.8 per cent or Rs7.415 billion. Last quarter had seen banks’ financing the consumer sector to the tune of Rs259.625 billion, according to the central bank data. A noticeable slump could be seen in the risk-averse banks’ credits to individual consumers under the heads of credit cards, auto loans, consumer durables, mortgage loans and other personal loans during the quarter under review.
Infection ratio for credit cards rise by 20.7pc
According to SBP statistics, during the said quarter banks had seen the infection ratio for their credit card financing climbing to 20.7 per cent from 19.5 per cent of last quarter. And their bad debts, naturally, surging by 2.1 per cent or Rs108 million to Rs5.222 billion against Rs5.114 billion of the previous quarter. This, perhaps, made the banks curtail their financing of credits card at Rs25.228 billion against last quarter’s figure of Rs26.244 billion.
Auto-loans decline by 6.4 pc
Banks’ advances under auto loans also dropped to Rs53.670 billion, registering a decline of 6.4 per cent or Rs3.671 billion in comparison with Rs57.341 billion lent during October-December FY10. With infection ratio for this loaning segment increasing from 10.2 to10.5 per cent, the loans that were defaulted upon, amounted to Rs5.621 billion.
Mortgage loans contract by 4.3%
Mortgage loans also saw a contraction of 4.3 per cent or Rs2.838 billion in terms of financing which during the quarter accumulated to Rs62.492 billion; 25.4 per cent of it infected. The banks’ NPLs under mortgage loans rose by Rs85 million or 0.49 per cent to Rs15.902 billion from the previous quarters’ Rs15.506 billion.
Consumer financing drops by 30.9%
Consumer financing by banks under the head of consumer durables witnessed a significant dip of 30.9 per cent or Rs310 million during the quarter contracting to Rs693 million from Rs1.003 billion the banks had offered in the last quarter. The borrowers’ defaults under this segment aggregated to Rs113 million against last quarter’s Rs109 million while infection ratio increased considerably from 10.8 per cent to 16.2 per cent. The banks, however, seemed unwary of their advances on account of “other personal loans” and during January-March FY11 granted Rs110.127 billion, rising by Rs420 million or 0.3 per cent against last quarter’s Rs109.707 billion.
The banks’ satisfaction towards their credits under this segment perhaps is due to a declining trend in their bad debts under the same head. The quarter saw the banks’ NPLs under miscellaneous personal loans dropping by Rs85 million or 0.49 per cent to Rs17.226 billion against Rs17.311 billion of the last three months.
