Pakistani banks working in different countries have seen a 12.06% or Rs. 13.5 billion increase in non-performing loans for their foreign operations during 2019.
As per the Financial Stability Review by the State Bank of Pakistan, most of these NPLs have been concentrated in the Gulf Cooperation Council (GCC) states, which have faced economic slowdown due to repressed international oil prices.
It is important to note that GCC countries’ regional GDP growth dropped from 2.0 per cent in 2018 to 0.8 per cent in 2019. In 2020, crude oil prices dropped further due to the Covid-19 outbreak which further upset these countries ‘ economic development.
The NPLs belonged mainly to the sectors of electronic / electrical equipment, real estate, and telecommunication. Additionally, the Rupee equivalent amount of NPLs from foreign operations has partially escalated as a result of domestic currency depreciation.
Previously, from March 2008 until June 2012, an episode of a surge in NPLs was also observed. A rise in NPLs over the last couple of years has, however, been substantially different from the previous chapter. For example, NPLs formerly continued to grow for 15 quarters while the increase in NPLs was short-lived in the recent episode.
In addition, the speed of growth of the NPLs (especially during 2008-10) has been very higher. In the previous episode, the asset quality indicators such as infection ratio, provisioning coverage ratio, and net NPLs to advance ratio showed a marked deterioration compared with marginal weakening during this episode.
89 branches of Pakistani banks operate in different countries abroad. About 70 per cent of these work in GCC states.
With a rise in global NPLs, the banking sector’s asset quality indicators deteriorated in 2019. The ratio of NPLs to gross advances increased from 7.97 per cent by the end of December 2018 to 8.58 percent by the end of Dec-19.
Although still high, the provision coverage decreased from 83.80 percent a year ago to 81.43 percent in 2019. As a result, the ratio of ‘net NPLs to net advances’ grew from 1.38 per cent a year earlier to 1.71 per cent in 2019. Capital credit risk coverage also decreased from 7.83 per cent in 2018 with the rise in the ‘net NPLs to capital’ ratio to 8.91 per cent in 2019.