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Karachi, December 11, 2013 (PPI-OT): Non-performing loans steadily improve
Non-performing loans steadily improve
The State Bank of Pakistan’s (SBP) third quarter banking sector non-performing loans data paints a picture of stable and steadily improving industry core fundamentals.
According to Arif Habib Limited, the stock of NPLs in banks’ and DFI’s portfolios, declined by PKR 11bn to PKR 621bn by Sep’13 end.
PKRbn NPLs Net NPLs Prov. Net NPLs / Infection Coverage
Net Loans Ratio Ratio
Sep-12 635.8 193.7 442.1 5.2% 17.1% 69.5%
Dec-12 629.0 183.1 445.9 4.7% 16.3% 70.9%
Mar-13 630.4 178.4 452.0 4.6% 16.3% 71.7%
Jun-13 632.1 169.6 462.5 4.4% 16.3% 73.2%
Sep-13 621.0 148.1 472.9 3.9% 16.2% 76.2%
Source: SBP, AHL Research
Encouragingly, sector’s infection ratio has started to shrug off to 16.2% by Sep’13- end compared to 17.1% in Sep’12. Moreover, the sector has been actively disposing of non-performing parts of their loan portfolios by increasing the provisioning coverage ratio which, as per Arif Habib Limited’s estimates, stands at 76.2% by Sep’13 compared to 69.5% in Sep’12.
Selected Banks’ NPLs (Sep’13)
%age of Gross Infection ratio Coverage ratio
Banks NPLs Loans Sep-13 Jun-13 Sep-13 Jun-13
ABL 19,692 7.4% 7.4% 7.1% 91.5% 89.5%
BAFL 21,296 8.5% 8.5% 8.6% 68.2% 66.8%
BAHL 3,878 2.4% 2.4% 2.5% 92.3% 86.2%
HBL 50,644 10.2% 10.2% 10.4% 84.0% 84.7%
HMB 17,322 13.8% 13.8% 14.5% 74.6% 73.5%
MCB 24,936 10.2% 10.2% 10.1% 82.4% 85.3%
MEBL 4,842 6.3% 6.3% 5.3% 93.0% 93.3%
NBP 95,569 13.2% 13.2% 12.9% 78.5% 78.8%
UBL 52,438 12.6% 12.6% 13.6% 84.6% 79.7%
Total 290,617 51.1% 10.5% 10.5% 81.2% 80.4%
Continued deleveraging, improving sectors performance pacing down NPLs accretion
Arif Habib Limited suspects banks’ would continue to build-up NPLs albeit with slow pace of accretion. Arif Habib Limited believes the risk of rising interest rates and its subsequent impacts on NPLs would partially be mitigated through further deleveraging loan sheets and improving individual sectors credit exposures. Arif Habib Limited’s talks with different banks’ managements suggested a similar outcome.
Major sectors’ credit disbursements (share of total credit off take) Sector Dec-12 Jun-13 Sep-13 Agriculture 8% 9% 9% Food 11% 13% 11% Textile 21% 21% 21% Chemicals 7% 7% 7% Power 11% 9% 10% Construction 2% 2% 2% Commerce And Trade 9% 8% 8% Others 31% 31% 31% Source: SBP, AHL Research
Nov’13 end deposit growth slowed to 12% YoY
By Nov’13 end, banks’ overall advances stood at PKR 4.0trn, showing a 6% YoY growth, while banks’ advance-to-deposit ratio showed a steady trend at 54.8% by period end. Banks’ deposit, on the other hand, showed a decent 12.2% YoY growth to PKR 7.3trn. With the rising interest rates and improving core fundamentals Arif Habib Limited remains bullish on banking sectors outlook. Arif Habib Limited has a strong preference for BAFL at current prices.