KARACHI, Nov 12: All banks and development finance institutions (DFIs) made Rs5.664 billion cash recovery from bad loans between July and September 2004, according to the data released by the State Bank.

The data show that banks made Rs5.426 billion cash recovery out of their non-performing loans (NPLs) whereas DFIs made Rs238 million cash recovery in the first quarter of this fiscal year. In April-June banks and DFIs had made combined cash recovery of Rs7.114 billion.

NPLs are the loans whose principal or markup or both remain unpaid for more than three months. The data show that in July-September this year, local private banks made the largest cash recovery of Rs3.795 billion.

Specialized banks made the second largest cash recovery of Rs1.277 billion. Public sector commercial banks and foreign banks recovered Rs226 million and Rs128 million in cash out of their NPLs.

The SBP data show that at end-September, total stock of NPLs of all banks and DFIs stood at Rs218.574 billion, down slightly from their total NPLs of Rs220 billion at end-June 2004. Of this the NPLs of commercial banks totalled Rs206.733 billion and those of DFIs Rs11.841 billion.

Whereas overall stock of NPLs stood at Rs218.574 billion at end-September, net NPLs or the stock of bad loans against which banks and DFIs had made no provisions totalled only Rs62.432 billion.

At this level it was 4.5 per cent of total net loans outstanding at end-September 2004. At end-June 2004, net NPLs of all the banks and DFIs stood at Rs71.319 billion or 5.4 per cent of their net loans.

Senior bankers say what helped them contain NPLs and make cash recovery in the first quarter of this fiscal year was that lending rates remained low, though they did show some spike compared with the end-June levels. "This helped the borrowers repay loans," said head of credit division of a large local bank.

Commenting on the improvement in banks' NPLs, the State Banks annual report for the last fiscal year attributed it also to higher earnings of the corporate sector, stronger rupee, better credit appraisal, improved loan restructuring policies, better credit culture among consumers and effective data checks by the Credit Information Bureau of the central bank.

All these factors except one were in play also during the first quarter of this fiscal year thus enabling the banks to improve their NPLs. The only exception was that the rupee that had remained strong throughout the last fiscal year and had lost only 0.5 per cent value against the US dollar, depreciated by 1.9 per cent in July-September 2004.

A stronger rupee in the last fiscal year had helped the borrowers repay their foreign currency loans. Senior bankers say another reason for the improvement in banks and DFIs bad loans is the larger share of consumer loans in the pie of bank assets. Consumer loans including auto loans and personal finances accounted for one-third of the total bank credit in the last fiscal year.