A recent State Bank of Pakistan (SBP) report reveals a troubling trend: a significant rise in non-performing loans (NPLs) within the banking sector.
The data shows a surge of over Rs. 70 billion in bad loans during 2023, reaching a staggering Rs. 1.009 trillion. This marks a concerning increase of Rs. 71.3 billion compared to 2022’s figure of Rs. 938 billion.
Commercial banks are the primary culprits, with a substantial portion of bad loans issued in 2023. Their NPLs jumped by 8% to Rs. 956 billion from Rs. 883 billion the year before. Local private banks saw an even steeper rise of 16.5%, with bad loans reaching Rs. 634 billion, up from Rs. 545 billion. Public sector banks, on the other hand, showed a slight decrease, disbursing Rs. 320 billion in bad loans compared to Rs. 336 billion in 2022.
Interestingly, foreign banks exercised greater caution, with bad loans dropping by a substantial 66% to just Rs. 633 million in 2023, compared to Rs. 1.86 billion the prior year. Development Finance Institutions (DFIs) saw a moderate increase, contributing Rs. 15 billion to bad loans in 2023, up from Rs. 10.5 billion in 2022.
While cash recovery against NPLs remained steady at Rs. 33 billion for the quarter ending December 31, 2023, the overall rise in bad loans paints a concerning picture. This surge hinders banks’ ability to extend credit, potentially stifling economic growth, especially considering the current lending rates. The SBP’s high-interest rate of 22%, implemented since June 2023, further exacerbates the problem, making loan repayment challenging for borrowers and raising concerns about future defaults.