BANKS have managed to improve credit quality during the last quarter of 2011, and senior bankers say strict monitoring of bad loans top their agenda for 2012.
In October-December 2011 most banks also made larger cash recoveries compared to the earlier quarter. This emboldened them to lend more to private sector in the current quarter.
Combined cash recoveries of all banks rose over 40 per cent to Rs19.2 billion in the final quarter of 2011 from Rs13.6 billion in the preceding quarter. “This is a big achievement,” boasted head of one of the top five commercial banks.
The development financial institutions (DFIs) reported a steeper rise in quarterly cash recoveries—from Rs122 million in July-September to Rs1 billion in October-December.
“Enhanced cash recoveries are a reflection of heightened economic activity as well as stricter monitoring of portfolios.”
Private sector’s borrowings from banks normally pick up from October on the arrival of sugarcane crop in the market and lasts till the end of the fiscal year in June while wheat harvesting continues.
“But during this fiscal year, private sector’s net borrowing began to rise quite late due to delayed cane crop and in the early part of October-December quarter banks remained focused on cash recoveries. They knew that the borrowers would repay fearing that in failing to do so they would risk approval of fresh credit lines,” said head of corporate credit at a local private bank.
Bankers say that media reports about mismanagement in state-owned banks and interventions by superior courts boosted cash recoveries of these banks as well. State-run banks recovered Rs3.7 billion in the last quarter of the outgoing year against Rs2.1 billion in the preceding quarter.
They also say, though credit disbursement during this fiscal year is rather more liberal than in the last two fiscal years, banks are still watching credit quality of the borrowers very minutely.
“The economy is expected to grow much faster this year than in the last year and this has created some demand in private sector credit. Banks want to capitalise on it and they know they cannot lend more to the private sector at competitive interest rates without containing bad loans that make fresh loaning costlier.
That is why, you see improvement in non-performing loans (NPLs) ratios,” commented chief financial officer of a local private bank. He pointed out that in October-December last year, net NPLs to net loans ratio for all banks fell to 6.04 from 6.42 per cent in July-September.
Even gross NPLs saw a slight decline and their total stocks by end-December came down to Rs607 billion from Rs613 billion as at end-September 2011.
Net NPLs of all banks also fell to about Rs220 billion from around Rs210 billion.
“Improvement in management of bad loans at this stage is very crucial,” said a senior central banker. “The government is finding ways to increase its non-bank borrowing and is slowly creating space for private sector credit off-take. Demand for private sector credit is also rising as we get indications of faster-than-expected expansion in GDP.
“Banks ought to understand that they cannot keep making profits by just investing money in government treasury bills and bonds. I think it is about time that banks contain bad loans more effectively, cut the cost of financial intermediation and lend more to the private sector.
That’s how they can ensure a sustained growth,” he added.
On the one hand about 27 per cent increase in tax collections of the federal government in eight months of the current fiscal year has brightened chances for meeting the full year tax revenue target.
And on the other the government is also trying to increase the share of non-bank borrowings in its overall borrowing mix. The recent launching of Rs25000 denomination prize bonds is one big example.
In about a month after its launching these bonds have reportedly raised Rs20 billion against an initial target of Rs5 billion.Officials of Central Directorate of National Savings say the launching of these bonds would help them collect more than the targeted amount of Rs200 billion through National Saving Schemes during this fiscal year.
Private sector borrowings from banks up to February 24 of this fiscal year, have shot up to Rs250 billion (against Rs208 billion in the year-ago period) on the back of highest-ever cotton production and revival of corporate and consumer credit demand.Pakistan Bureau of Statistics has projected that wheat output might also exceed 27 million tonnes against the initial estimate of 24 million tonnes.
“So, we expect that net demand for private sector credit during this year would remain fairly strong and the banks that want to capitalise on it would have a chance to limit their exposure in T-bills and bonds,” opined treasurer of a local bank.