KARACHI - The loan portfolio of the banking sector is likely to improve in the quarters to come on expectations of seasonal pick up in banks advances and a little decline in NPLs growth, an analyst told The Nation on Tuesday. Moreover, due to change in prudential regulation with respect to FSV benefit, credit provisions are also anticipated to drop further in the months ahead. Kamran Rehmani, analyst at FECL Research, said that the flow of Non-Performing Loans of the commercial banks could witness slowdown in growth, which would be resultant in improving the asset base of the sector to a certain level. He stated that the increased vigilance by the banks toward new lending and reduced appetite of risk would help them to recover their asset quality in the coming quarters. He was of the opinion that the revival in advances will be diverted to the energy sector, government borrowings and working capital loans amid rising global commodity prices, which have lowest infection ratio. However, the coverage ratio could drop in 4Q2009 from its current level, as the banks will take add'l FSV benefit for provisioning requirement. Meanwhile, FECL report stated that the 3rd quarter of the current calendar year (July-Sept) proved as the toughest quarter for the listed banks as the banks revenue grew by 1per cent only. This eventually caused operating profits to decline by 0.3pc to PRs42.6b as compare to the same period of preceding quarter. According to the revelations of report, the sector posted impressive Q-o-Q jump of 76 per cent. Due support came from curtailment in provisions against NPLs that dropped by 45pc to PRs12b over RPs21bn in the previous quarter. Report found that this was an outcome of the slowdown in net addition of fresh NPLs into the system and practicing the benefit of relaxation in FSV criteria by some banks. It must be recalled here that the SBP allowed 40pc FSV benefit of pledges stocks and mortgaged commercial & residential properties (30pc previously). In addition to this, SBP also allowed 40pc FSV benefit on industrial properties, land and building only (0pc previously). However, impact of the change in above mentioned prudential regulation will be more prominent in the on going quarter. As per the latest financials for the quarter ended Sept 30, 2009, gross NPLs of the banking sector stood at PRs322.5b as compared to PRs310.2b on end-June 2009. A year ago, as on September 30, 2008, this figure was at PRs206.2b. Nevertheless, inflow of fresh NPLs has visibly dropped as PRs14.2b was added in the NPLs head during the quarter, down by PRs8.6b or 38pc as against PRs22.8b in the preceding quarter. On segregated basis, PRs212.2b (65 pc) NPLs are held under loss category, while PRs57.9mn (18pc) and PRs49.5m (15pc) are classified as doubtful and loss category, respectively. Gross NPLs to gross advances - an important ratio to gauge the flow of NPLs , peaked at 10.77pc as compared to 10.05pc on June 30, 2009 and 7.1pc on Sep 30, 2008. Q-o-Q rise in NPL ratio is also attributable to drop in gross advances that stood at PRs3.01tr as against Rs3.09tr. Loan loss coverage ratio of the banking sector also inched up to 69 per cent from 68pc in the quarter while this ratio was at 76pc a year earlier. In absence of FSV benefit, this ratio would be at 78pc.