Seven feet under

KARACHI – The bad debts of the foreign banks operating in the country are increasing and have ballooned to over Rs 7 billion during the quarter that ended on March 31 this year. Also, the foreign banks’ cash recovery against their Non-Performing Loans (NPLs) witnessed a downward trend during the third quarter of current fiscal year, January-March FY2012.
The bankers viewed that this increase in the international banks’ bad debts might be on account of defaults from the telecommunication sector, including Warid and Wateen. Another major reason they see is that of the consumer side.
The central bank data show that the foreign banks’ gross NPLs rose by Rs 164 million or 2.1 percent to Rs 7.765 billion compared to last quarter’s Rs 7.601 billion. The international banks’ net NPLs depict a more worrisome trend by swelling to Rs 952 million against Rs 756 million of last quarter.
This shows an increase of 26 percent or Rs 196 million, in monetary terms, over the last quarter.
The foreign banks also could not help their cash recovery improve which remained confined to Rs 83 million, down Rs 51 million or 38 percent compared to Rs 134 million of the previous quarter.
In recovery terms, the 3QFY12 did not augur well for other categories of the banks and DFIs which recovered low cash compared to what they had in last quarter. Overall, the banks and DFIs recovered cash worth Rs 14.318 billion against Rs 20.252 billion of 2QFY12.
The recoveries of the commercial banks depleted to 12.404 billion from Rs 15.906 billion.
The public sector banks, local private banks, specialized banks and the DFIs saw their cash recoveries plunging, respectively, to Rs 2.09 billion, Rs 10.22 billion, Rs 1.54 billion and Rs 372 million from Rs 3.67 billion, Rs 12.09 billion, Rs 3.32 billion and Rs 1.02 billion.
About poor recoveries, a banker said the banks were masterly suffering from a slow-paced judicial system in the country that, he said, was encouraging the borrowers to “willfully” default on bank loans.
“Besides genuine defaults that are caused by the country’s volatile economic conditions amid power crises, poor law and order etc, there are some who willfully don tend to repay the loans,” the banker told Profit.
Such borrowers, the banker said, were not afraid of the consequences of committing default on the bank lending. “The most the banks could do to such defaulters is to take them to the banking courts where completion of a case takes at least five years,” he said adding “Why should they fear the courts then?”
Perhaps this very factor is playing as a stimulus for the banks’ bad debts which have aggregated beyond Rs 600 billion.
The State Bank reported, during the quarter in review, the gross NPLs of the banks and DFIs accumulated to Rs 625.432 billion against Rs 625.778 billion of preceding quarter, October-December FY12. This takes net NPLs of the banks and DFIs’ to 5.71 percent of their net loan portfolio.
A central banker said the above five percent volume of NPLs was not a positive indicator as the same should rest below five percent, somewhere between three to four percent.
The economic observers believe that the increasing size of NPLs was one of the attributable factors in making the banks risk-avers. The central bank figures show that the banks are lending more to the government through investing messily in the risk-free government securities, including T-bills, PIBs and Ijara Sukuk.
During July-May 11, the banks’ budgetary loans to the cash-strapped government amounted to over Rs 1.05 trillion compared to 620.6 billion of same period in FY11. While the growth-oriented private sector could avail bank loans worth only Rs 234.8 billion during the review period. This risk-aversion by the banks, in terms of lending, the analysts warn, puts growth prospects in the troubled country to risk.