KARACHI, Nov 4: The State Bank has shown concern over the rising volume of non-performing loans (NPLs) of all banks and said the consumer financing got the major share in the NPLs.

The myth and the tall claims made by the bank — that the non-performing loans were not increasing — proved to be false with the report included in the “Quarterly Performance of the Banking System.”

“On the back of persistent and strong growth in loans, the concerns about high credit risk continued to overhang the otherwise impressive all round performance of the banking system in this quarter,” said the report.

This is evident by an increase of another Rs2.4 billion in total gross non-performing loans (NPLs) of commercial banks, said the report adding that resultantly, total NPLs of commercial banks (CBs) reached Rs141.5 billion from Rs139.1 billion in March-06.

The report said the specialized banks experienced even greater increase of Rs4.8 billion in their non-performing loans.

“The total NPLs of all banks surged to Rs183.8 billion from Rs176.7 billion in March-06,” said the SBP. It said the higher credit risk is also evident by the concomitant increase in net NPLs of all banks.

The report said that it reflected building pressures on the asset quality of this vital segment of the financial sector.

“The banking system can ill-afford the persistent increase in this ratio considering its potential adverse impact on capital,” said the report.

The report said that the NPLs to loans ratio declined slightly for both CBs and all banks and this was because the fast growing loans portfolio, which helped in shrouding the rise in NPLs.

The impact of rising NPLs, however, is more evident in case of net NPLs to net loans ratio. This ratio stayed unchanged for CBs while it increased for all banks.

The report said the NPLs of local private banks (LPB) over the past few quarters have continued to show a gradual upward trend, and if this trend persists in the coming quarters, the situation would require serious efforts on the part of key players to reverse this trend.

In this quarter, LPBs saw an increase of Rs1.7 billion in their gross NPLs and Rs0.3 billion in net NPLs. The position is not different for public sector commercial banks (PSCBs), which also experienced an increase of Rs0.6 billion and Rs0.1 billion in their gross NPLs and net NPLs, respectively.

On the other hand, foreign banks (FBs) continued to enjoy comfortable position, as their gross NPLs remained unchanged whereas net NPLs stayed in the negative zone as they are already maintaining excess provision against NPLs.

Consumer financing has been a noticeable activity in a good number of banks in recent years, and total exposure, both in terms of volume and number of borrowers, has grown appreciably.

While more number of banks has ventured into consumer financing because of higher returns, they have started of late to experience some strains on the quality of their consumer finance portfolio.

During the current quarter, the ratio of NPLs to loans for consumer sector increased to 1.9 per cent from 1.3 per cent in March-06.

As a result of increase in NPLs against consumer finance, the share of this segment in the total NPLs of the banking system increased to 3.3 per cent from 2.2 per cent in the preceding quarter.

“The break-up of NPLs reveals that NPLs against unsecured products like personal loans constitute the major share followed by auto loans, which are adequately secured,” said the report.

Total NPLs in the corporate sector, the main user of bank loans, increased by Rs1.2 billion during the quarter. However, the ratio of NPLs remained unchanged because of almost proportionate increase in total loans to this segment. In contrast to the decline in the preceding quarter, NPLs in the agriculture sector increased by Rs5.3 billion, leading to increase in its share in total NPLs to 18.8 per cent from 16.4 per cent in March-06.

The downward trend of NPLs in the SME segment continued in this quarter as well. Total NPLs in this segment declined by Rs1.2 billion.