KARACHI, Oct 8: Commercial banks have been moving fast on default track as their non-performing loans (NPLs) touched a new high and reached over Rs17 billion during the first six months of the current banking year.
The trend of default in the banking sector continued to rise in the second quarter reflecting the poor risk management of the banking system.
Once again most of the defaults or non-performing loans (NPLs) were in the accounts of commercial banks expected to have better management skills.
A latest report showed that the NPLs of the banking sector further increased by Rs3.2 billion in the second quarter, April-June 2007.
The first quarter was the real trend-setter when the NPLs of the sector went up by Rs11 billion.
It has been a real source of concern for the banks and the State Bank that the NPLs are rising despite stiff measures taken under banking reforms.
The breakup of these NPLs identified the commercial banks as grey area in the banking sector. The NPLs of commercial banks rose to Rs151.9 billion in Jun 2007 from Rs142.8bn in March 2007, an increase of Rs9.1 billion.
During the first quarter January-March, the NPLs of all commercial banks went up to Rs142.823 billion with an addition of Rs8.311 billion.
“The collective default of the commercial banks during the last two quarters touched an alarming figure of Rs17.4 billion which is highly concerning,” said an analyst.
The commercial banks have the major share in the entire banking sector and are the major beneficiary of the record banking profits being earned for last three years.
Analysts feared that if the default trend persisted for another two quarters, the NPLs could reach a high level of up to Rs35 billion. This high NPLs would put a serious threat to the entire banking industry while profits of the baking industry would sharply reduce.
In a recent move, the State Bank issued a draft circular which talked about 100 per cent provisioning of the NPLs.
The move faced a serious reaction from the banking industry pressuring the State Bank not to implement it.
The main concern is that 100 per cent provisioning would drastically cut their profits and it would ultimately shrink attraction in the bourses.
Analysts said the listed banks have already created enough NPLs in two quarters to reduce their profits as well as prices in the shares market.
If the commercial banks ended with the Rs30 to Rs35 billion additional NPLs in the account by the end of this year, that would be a serious blow to their image in the market.
Analysts said the State Bank’s proposed draft circular could be effective from Dec 31 2007 which requires 100 per cent provisioning of NPLs.
