LAHORE – The banking sector’s non-performing loans (NPLs) continued to mount up, reaching all time high of Rs 653 billion in FY2012 on the back of high interest rate and slow economic activities.

The experts revealed that NPLs of all types of banks including specialised banks and local private banks, foreign banks and public sector banks have posted some growth. During the period under review, NPLs of local private banks surged by Rs 16.351 billion to Rs 394.720 billion. With an increase of Rs 1.191 billion, NPLs of specialised banks reached Rs 35.788 billion level in June this year. During the under review, NPLs of public sector banks gone up by Rs 9.793 billion to Rs 196.399 billion. During the first half, NPLs of foreign banks have increased to Rs 7.883 billion from 7.574 billion.

Although both components of NPLs have posted upward trend, however, major increase has been witnessed in the NPLs of banks. NPLs of all banks recorded an increase of Rs27.645 billion in first half. With current surge in NPLs of banks reaching the mark of Rs634.79 billion in June 2012, against Rs607.145 billion in corresponding period of last year. During the period under review, NPLs of DFIs have mounted by Rs 2.152 billion to Rs 18.2 billion in June 2012 from Rs 16.048 billion.

According to experts, the current raise in the NPLs reflect that the challenges for banking industry is still not over and they have to develop long term polices to curtail rising NPLs.

They believed that slow economic activities, high interest rate followed by tight monetary policy, power outage and the poor law and order situation, besides taxation policies are responsible for continued growth in the NPLs.

However, they said that now the State Bank of Pakistan had reduced its key policy rate by 1.5 per cent in recent monetary policy had created some hopes that in future NPLs might be declined. They said that banking sector is already deprived of higher NPLs and reluctant to expand financing to the private sector and preferring to invest in the government papers.

The State Bank of Pakistan (SBP) in its report revealed that NPLs of banks and DFIs continue to grow and register a phenomenal raise of 5 percent in first half of current calendar year (January-June 2012). According to SBP, a totalled NPLs of banks and DFIs have mounted to Rs 653 billion as on June 30, 2012 compared with Rs 623.19 billion as on December 31, 2011, depicting a surge of Rs 29.198 billion in first half of CY12. However, the increase in second quarter of current calendar year is much higher than first quarter of CY12, as an incremental of over Rs 2.25 billion was registered in NPLs of banks and DFIs in the first quarter of CY12.