April 14, 2002	Sunday	Muharram 30, 1423

KARACHI, April 13: The amount of loan defaults reported by all the commercial banks rose from Rs121.1 billion at end-June 2001 to Rs126.6 billion at end-February 2002.

Three state-run banks namely (i) National Bank (ii) Habib Bank and (iii) United Bank saw a combined increase of Rs4 billion in their loan defaults during this period. Their stock of defaulted loans increased from Rs80.6 billion at end-June 2001 to Rs84.7 billion at end-February 2002.

The defaulted loans are the loans whose principal or markup or both become overdue by more than a year. These form part of non- performing loans that are defined as the loans whose principal or markup or both fall overdue by 90 days or more. During the first eight months of the current fiscal year (July-February 2001-02) the amount of NPL of all commercial banks also rose to Rs169 billion from Rs159 billion at end-June 2001.

The latest State Bank statistics show that defaulted loans of local private banks also shot up from Rs8.5 billion to around Rs14.7 billion during the same period. In a sharp contrast to this the foreign banks managed to reduce their stock of defaulted loans from Rs10.8 billion at end-June 2001 to Rs5.7 billion at end-February 2002. The two partly privatized banks i.e. Muslim Commercial Bank and Allied Bank combined recorded only a modest growth of Rs400 million in their loan defaults that inched up from Rs21.1 billion to Rs21.5 billion during the period under review.

A deeper analysis shows that total loan defaults of the state- run banks rose both in terms of default on principal amount as well as on markup: at end-June 2001 the state-run banks carried Rs59.25 billion loan defaults on principal and Rs21.3 billion on markup; at end-February 2002 principal amount in default rose to Rs64.5 billion and the markup default went up to Rs20.3 billion.

In case of local private banks the principal amount in default stood at Rs6.9 billion and markup default at Rs1.6 billion at end-June 2001 that moved up to Rs12 billion and Rs2.6 billion respectively at end-February 2002. In contrast the principal and markup default of foreign banks that stood at Rs8.3 billion and Rs2.9 billion at end-June 2001 fell to Rs3.6 billion and Rs2 billion, respectively, at end-February 2002.

In case of partly privatized banks whereas the principal amount in default rose from Rs18.2 billion at end-June 2001 to Rs19.2 billion at end-February 2002 the markup default fell from Rs2.9 billion to Rs2.3 billion during this period.

Senior bankers say a major reason for the loan defaults of the state-run banks moving up during the first eight months of this fiscal year was the amalgamation of National Development Finance Corporation into National Bank of Pakistan.

Since the corporation was carrying a huge default when it was merged with NBP it directly inflated the loan defaults of NBP and in turn raised overall defaults of the state-run banks. But apart from this poor recovery from old defaults partly due to a slump in economy also let the loan defaults of the state-run banks go up.

Bankers say the change in the status of Faysal Bank and Bank Alfalah was one of the reasons for a rapid growth in loan defaults of local private banks — against a marked decline in the defaulted loans of foreign banks. These two banks had changed their status from that of foreign banks to local banks in 2001.

Whereas loan defaults of the commercial banks increased in the first eight months of this fiscal year (July-February 2001-02) the development financial institutions managed to reduce their stock of defaulted loans. The volume of defaulted loans of DFIs fell from Rs30.9 billion at end-June 2001 to Rs18.7 billion at end-February 2002.

Executives of DFIs say the main reason for this was that NDFC was removed from the list of the DFIs after its merger with NBP. But they also say that a halt in project financing by DFIs also enabled them to keep the rise of loan defaults.

The statistics show that specialized banks recorded a growth of more than Rs1 billion in their loan defaults between July- February 2001-02: loan defaults of these banks rose from Rs20.3 billion at end-June 2001 to Rs21.3 billion at end-February 2002.