KARACHI, Dec 11: Banks recovered about Rs3.3 billion worth of defaulted loans of Rs1 million and above between July-October this year. Specialized banks and development financial institutions (DFIs) also recovered Rs376 million from their loan defaulters of Rs 1 million and above.

Bankers said these recoveries included cash recovery from, and restructuring of, the defaulted loans.

They said the pace of recovery was a bit slow in October. Up till September banks had recovered about Rs2.6 billion and DFIs Rs305 million only. In October banks recovered Rs700 million and DFIs Rs71 million.

At the end of October, loan defaults of all commercial banks stood at Rs116 billion and that of DFIs at Rs52.8 billion. Or the loan defaults of the entire banking sector was at Rs168.8 billion.

Up till June, banks had total loan defaults of Rs121 billion and DFIs of Rs51.2 billion. Or the loan defaults of the banking system totalled at Rs172.2 billion.

Bankers say the Rs168.8 billion loan defaults as on October 31 was part of the non-performing loans of Rs285.5 billion. Non- performing loans are the loans whose principal or mark-up or both become overdue by more than 90 days. Defaulted loans are those whose principal or mark-up or both are overdue by more than one year. Of this banks were carrying non-performing loans of Rs152 billion and DFIs of Rs133.5 billion.

Up till June, non-performing loans of banks and DFIs stood at Rs279 billion. Of this the NPL of banks was Rs159.5 billion and that of DFIs was Rs119.5 billion.

The fall in the NPL of the banking system is quite nominal in the first four months of this fiscal year. But bankers say it shows that the banks and DFIs are not sleeping over their bad loans. They say the pace of recovery was not picking up for a variety of reasons—most immediate of them being a slowdown in economic activity after September 11.

Banks’ NPL of Rs152 billion as on October 31 is equal to 19 per cent of their total advances. But the Rs133.5 billion NPL of DFIs is more than two third of their total advances. This is because of different nature of lending by the banks and DFIs.

Whereas banks mostly provide commercial loans for short to medium term the DFIs provide long term project financing. It is easier to recover short to medium term loans as most borrowers concerned fail to pay back loans because of seasonal liquidity problems.

But recovering long-term project finances is difficult because the projects are closed down or they no longer have the resources to repay.

Central bankers say slow recovery of bad loans leaves banks unable to cut costs. That, in turn, does not allow them to cut lending rates in response to the lowering of the SBP discount rates.

Since July, SBP has cut its discount rate by four per cent to 10 per cent but the banks have so far not lowered their lending rates.