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Housing carries highest default rate

July 15, 2012

KARACHI, July 14: The housing sector has the highest default rate despite low percentage of loans given to the sector by the banks.

The State Bank report over housing and finance said the percentage share of NPLs (non-performing loans) that all banks and other DFIs (excluding HBFCL) constitute is 61 per cent in total NPLs.

While during the tenure of present government the banks have been cautious about lending to private sector, which absorbs over 95 per cent of the banking liquidity, the massive default has further blocked the loans towards the housing.

The State Bank said NPLs soared to Rs20.1 billion in March 2012 from Rs18.9 billion in March 2011, an increase of 6.4 per cent.

“NPLs as a proportion of total outstanding have witnessed an increasing trend over the last 12 months,” said the SBP report.

Banking sector has been facing the acute problem of NPLs which has crossed the figure of Rs600 billion resulting into lower banking profits and poor return to the depositors.

The central bank said the overall rise in NPLs (housing sector) is primarily due to rising inflation and high interest rates.

Housing sector has been subjected to high lending rate as it has increased the cost of construction and labour and resulted in default of borrowers.

Other than banks, the highly infected is the Housing Building Finance Corporation (HBFC) of which the NPLs increased by Rs900 million during a year.

“Although growth of its NPLs remains relatively low in absolute terms when compared to some of the other banking sectors, its percentage share in its total outstanding is the greatest, as 61 per cent of its total outstanding,” said the SBP.

Excluding HBFCL, NPLs for all banks and other DFIs have increased by 2.2 per cent over the year.

Among banks, non-performing finances (NPFs) of Islamic banks witnessed a decrease of almost 8 per cent during the year, from Rs1.5 billion to Rs1.4 billion. Their NPFs constitute 16 per cent, as on March 31, 2012, of total outstanding, which was 15 per cent last year.

NPLs of the public sector banks have decreased from Rs2.1 billion to Rs2 billion which are 25 per cent of total outstanding as on March 2012.

NPLs of the private banks’ have increased by 6.2 per cent from Rs8.1 billion to Rs8.6 billion, which is 30 per cent of their total outstanding as against 25 per cent last year.

NPLs of foreign banks as a percentage of their outstanding portfolio increased from 30 per cent at the quarter end Jan-Mar 2011 to 54 per cent as of March 31, 2012.

NPLs of DFIs (excluding HBFCL) have increased from Rs109 million to Rs112 million, over a year, a 2.7 per cent increase with 51 per cent of their total outstanding classified as NPLs as on March 31, 2012.

NPFs for Islamic banking industry (IBs & IBDs) were reported as Rs2.2 billion on March 31, 2012, which were Rs3.1 billion last year.