Pakistan’s banking sector sees surge in non-performing loans

WEB DESK: According to data from the State Bank of Pakistan (SBP), non-performing loans (NPLs) in the banking sector rose by Rs9.11 billion, or 0.9 per cent, by June 2024, compared to the previous quarter.

As of the end of June, the total value of these bad loans reached Rs1 trillion, up from Rs995.25 billion at the end of March 2024.

Despite this increase, the banks’ net non-performing loans—calculated by subtracting provisions for loan losses from the total NPLs—indicate that banks still had over Rs53 billion in reserves from financial auxiliaries’ income set aside to cover potential losses.

The net NPLs as a percentage of net loans, which reflects the extent of loan impairment after accounting for provisions, was recorded at -0.44 per cent.

Additionally, cash recovery against NPLs for the quarter totalled Rs32.94 billion, a notable increase from Rs22.58 billion recovered in the previous quarter.

What are non-performing loans (NPLs)?

Non-performing loans (NPLs) are loans and advances where either the markup or principal has been overdue for 90 days or more. An NPL occurs when a borrower fails to make scheduled payments for a specified period, leading to the loan being classified as in default.

While the exact criteria for a loan to be deemed non-performing can vary depending on the loan’s terms, it generally involves a complete absence of payments on either the principal or interest.

The period required for a loan to be considered non-performing can differ by industry and loan type but is commonly set at 90 days or 180 days.

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