KARACHI, July 12: The State Bank has made some startling revelations in its latest report that covers all most all sectors unveiling that despite being the highest earning sector the textile appears the biggest defaulter while sugar industry fetched 76 per cent of entire credit off-take by the private sector in the fiscal year 2011.
The SBP in its ‘quarterly compendium’ reported that almost all important sectors were accumulating defaults with high rates, but the textile which enhanced its exports earning by 23 per cent last fiscal year appeared as biggest defaulter with Rs176.5 billion till March 2011.
During the third quarter, January-March, the default rose by Rs26 billion (on average Rs8.6 billion per month) to Rs573.5 billion reflecting the poor economic performance and worst risk management by the banks.
These huge losses of banks are finally resulting into negative returns to depositors while banks are making profits with over 7.5 per cent banking spread.
The SBP report shows that out of total default of Rs573.5 billion, an amount of Rs436.5 billion is in the loss category which means no hope of recovery. ‘The loss is 76 per cent of the total default.’
The textile sector has the highest advances of Rs737 billion while 24 per cent of it is infected (default rate).
After textile, the largest default was made by individuals as their total default reached Rs72.7 billion till March 2011 and the default rate was 17 per cent.
Similarly, cement sector’s default was Rs17.6 billion with the default rate of 18.7 per cent, automobile and transportation defaulted by Rs11.5 billion, the infected ratio was 23.5 per cent.
Electronics which showed growth during this fiscal year accumulated the defaulted amount to Rs22.3 billion while its infected ratio was the highest at 37.3 per cent.
Power and transmission of energy sector also appeared as one of the major defaulters as their total defaulted amount rose to Rs22.9 billion till March.
Apart from these default surprises, the fastest flow of liquidity towards sugar sector in just three months was also a revelation.
The sugar sector has been a prime focus for the last four years, mainly because of its cartel-style operation, causing artificial shortage and sudden jump in sugar prices, black-marketing and successfully increasing the price up to 100 per cent with the help of political clout in power corridors of Islamabad.
The SBP report reveals that the sugar sector borrowed Rs65.8 billion in just three months from January to March.
The infected loan was 19.4 per cent till end of December 2010 but the ratio reduced to 10.3 per cent in March due to large borrowing.
Private sector’s total borrowing was just Rs85.9 billion for almost entire fiscal year while sugar sector alone borrowed Rs65.8 billion, 76.6 per cent of entire borrowings.
The rising defaults have made banks cautious as they are reluctant to extend loans especially to private sector while their 80 per cent money is being used for investing in government papers.
The SBP has been asking the government to stop borrowing from banking system and leave space for private sector to use the liquidity that could benefit the ailing economy.