November 11, 2001	Sunday	Shaba’an 24, 1422

KARACHI, Nov 10: All commercial banks recovered about Rs2.6 billion worth of defaulted loans in the first quarter of this fiscal year (July/September 2001). Specialized banks and development financial institutions (DFIs) have also reported a recovery of Rs305 million in the same period.

A central banker said these recoveries included cash recovery from — and restructuring of — loan defaults of Rs1 million and above. All commercial banks put together reported Rs117 billion worth of loan defaults of Rs1 million and above at the end of September 2001. Specialized banks and DFIs reported total loan defaults of Rs52 billion. In other words loan defaults of the entire banking system stood at Rs169 billion.

At the end of June loan defaults of all commercial banks stood at Rs121 billion and that of specialized banks and DFIs totalled Rs51.2 billion. Or loan defaults of the banking system stood at Rs172.2 billion.

A loan is classified as default if its principal or markup or both become overdue by more than a year. Central bankers say the Rs169 billion loan default of the entire banking system forms part of their total non-performing loans of Rs276.5 billion as on September 30, 2001.

A loan is categorized as non-performing when its principal or markup or both become overdue by 90 days or more.

At the end of June 2001 non-performing loans of the banking system was a little more than Rs279 billion. Of this NPL of commercial banks was Rs159.5 billion and that of specialized banks and DFIs stood at Rs119.6 billion. According to the SBP statistics the NPL of all commercial banks declined to Rs156.5 billion in next three months. But that of specialized banks and DFIs rose to about Rs120 billion. Senior bankers said whereas the NPL of commercial banks contracted mainly due to decline in their volume of loan defaults the NPL of specialized banks and DFIs increased modestly as some of their new loans become overdue by 90 days or more.

The breakup of recoveries made by the commercial banks reveals that three nationalized commercial banks namely (i) National Bank (ii) Habib Bank and (iii) United Bank recovered Rs1.6 billion during July-September 2001; followed by partly privatized Muslim Commercial Bank and Allied Bank that recovered Rs473 million. Local private banks reported a recovery of Rs192 million whereas foreign banks recovered Rs304 million in the first quarter of this fiscal year. The volume of defaulted loans of nationalized commercial banks shrank to Rs74.3 billion at the end of September from Rs80.6 billion at the end of June. But the loan defaults reported by partly-privatized banks stood at Rs121.7 billion at the end of September up slightly from Rs21.2 billion reported at end-June.

Meanwhile the loan defaults of local private banks shot up to Rs15.2 billion from Rs8.5 billion. But central bankers link this unusual buildup in loan defaults to the fact that Faysal Bank and Al-Falah Bank were re-categorized as private banks from foreign banks. This also explains how the loan defaults of the foreign banks fell from Rs10.8 billion at the end of June to Rs5.7 billion at the end of September. Senior bankers say the loan defaults reported by specialized banks fell from Rs20.3 billion at the end of June to Rs19.4 billion at the end of September but the volume of defaults reported by DFIs increased from Rs31 billion at the end of June to Rs32.5 billion at the end of September 2001.

But this does not mean that specialized banks and DFIs made no recoveries in the first quarter. According to the SBP statistics specialized banks recovered Rs132 million and DFIs recovered Rs173 million in July-September this year. Specialized banks and DFIs put together recovered Rs305 million in the first quarter.

Senior bankers attribute the recovery of Rs2.6 billion made by the commercial banks and that of Rs305 million by specialized banks and DFIs in the first quarter to their accelerated drive against the defaulters.

They say nationalized commercial banks were making particular efforts to recover non-performing loans to prepare themselves for privatization.