Cement sector top contributor to non-performing loans in 2021

KARACHI: Cement, agribusiness, power and sugar sectors remained the top contributors to non-performing loans (NPLs) of banking sector during the last year, according to independent research reports.

Most of the increase in bad loans came from the cement sector (49 percent) followed by agribusiness (27 percent) and the production and transmission of energy (25 percent), according to Taurus Securities.

The rise in NPLs could have been higher, if the State Bank of Pakistan had not allowed banks to consider the deferment and restructuring and rescheduling of loans on borrowers’ request, analysts said.

NPLs of banking sector increased to 9.2 percent of total loans in December last year from 8.6 percent a year ago, although banks were expected to manage infections with the government’s support.

The provision to NPLs stood at 88.3 percent at the end of December, compared with 81.4 percent in the same period of 2019, according to the central bank’s data.

Mustafa Mustansir, head of research at Taurus Securities Limited told The News that banks have already proactively booked general provisions as well as provided for risky exposures on a subjective basis last year. So, the current coverage levels are adequate

“We don’t think NPLs would surge so much because of ongoing economic recovery. In fact, banks have even reported that those customers who availed COVID related reliefs are also making payments on time,” Mustansir said.

Over the past three years, electronics sector’s infection swelled from 15.7 percent to 20.7 percent, while textile sector ratio has improved to 14.7 percent from 22 percent, according to the Topline Securities.

Electronics, sugar, textile, agribusiness, and automobile sectors were the top contributors to non-performing loans of banking sector between Jun 2017 and June 2020, it said.

Banks and development finance institutions deferred and restructured loans worth Rs910.7 billion as of April 2 to the borrowers struggling to service their debts amid COVID-19 lockdown.

The deferred loans totaled Rs657 billion, whereas Rs253 billion worth of loans were restructured by the financial institutions during March to April.

Further guidance from most banks is that they do not anticipate any significant deterioration in asset quality because of the economic recovery momentum, Mustansir added.

“As long as we don't have an economic lockdown we will remain on track for economic growth and so buildup in NPLs would be manageable also.”

Banks made provisions of Rs71.3 billion during the first half of 2020, more than double the amount of Rs32.2 billion in the corresponding period last year, said a SBP’s report.

The banking sector remains stable with adequate capital buffers and liquidity. The average capital adequacy ratio stood at 18.6 percent in December 2020, compared with 17 percent a year earlier.