Oct 26 - Nov 01, 2009

Persistent power crisis, credit crunch, uncertain law & order situation and non-performing loans (NPLs) led to downward trend in lending of Pakistani banks to small and medium enterprises (SMEs), agriculture, and housing finance.

According to statistics, SME sector has the lion's share in development finance (DF) constituting about 43.5% of total DF outstanding. At the end of first quarter of the current year, the SME sector's outstanding credit stood at 349.1 billion (11.5%) of the total credit of the banking industry. A negative quarterly growth of 6.9% has been recorded in advances to SME sector mainly due to rise in inflation, power outages, credit crunch, and NPLs.

An overview of the facility wise financing to SME sector reveals that the major portion of the outstanding amount is utilized for working capital finance followed by fixed investment. Utilization of SME loans by different types of SME's displays that manufacturing SME's received the largest share of about 45.2% of total SME finance followed by trading SME's with 39.7% and services SME's 15.1%.


According to a report, the central bank runs refinance schemes to meet funding needs of certain sector to promote the exports of the country. These schemes are Export Finance Schemes and Long Term Financing (LTFF). In view of the changing international and domestic economic environment, SBP under its refinance schemes offered certain relaxation in the Long Term Financing Facility. Moreover, financing for plant, machinery, and equipment was allowed under the facility. Exporters of the hand knotted carpets were allowed a relaxation to show performance of 1.5 times for the years 2008-09.

At the end of March this year, banks were allocated limits of Rs. 204 billion under the export finance scheme (including Rs. 11.5 billion for IERS). Rs. 167 billion was outstanding under the scheme as compared to Rs. 138 billion for same period last year mainly due to the revision in EFS scheme of financing from 70% to 100%. The commodity wise and borrower wise analysis under EFS financing continues to show skewed distribution. Out of total credit extended under EFS, 62% was outstanding against the textile sector. The top 10% beneficiaries/borrowers were availing up to 75% of the total financing under the scheme.


Housing finance constitutes about 9.5% at the end of March that witnessed a slight decline of 1.43% in gross outstanding portfolio of the housing finance.

The total number of outstanding borrowers has also decreased from 126,595 to 121,368 since March 2008. Moreover Non-performing loans have increased from Rs. 8.99 billion (March 2008) to Rs. 13 billion (March 2009) a 45% increase over the year. Approximately, 940 new borrowers were served during the quarter accounting for Rs. 1.78 billion of additional disbursements in housing loans.

HBFC accounted for 55% of these new borrowers and contributed over 16% of the Rs. 1.78 billion additional disbursements. Financing for outright purchase continued to dominate other sector (construction and renovation) by comprising over 59% share in outstanding.

Mr. S. Farrukh Hussain Rizvi, who is a leading and seasoned banker and senior executive vice president & general manager of Soneri Bank Limited told this scribe that non-performing loans were in fact like an epidemic which appeared along with multiple economic festers.

He said that his bank was also hit by NPLs but since main focus of his bank was on working capital loans, small agri loans and consumer financing, therefore, his bank was not much affected like other banks.

Quoting a recently published report, he said the non-performing loans (NPLs) of Pakistan's development financial institutions (DFIs) have soared by over 115 per cent in just 10 years from Rs 185 billion in 1999 to Rs 398 billion in 2009. This shows the NPLs have swelled by Rs21.3 billion or 11.5 per cent every year during the 10-year period in Pakistan.

According to the report, majority of these Rs398 billion NPLs are associated with the ailing textile sector, which has consumed loans to the tune of approximately Rs543.8 billion till October 19, 2009, therefore the chances of recovering these loans which have either been defaulted by the debtors or are currently hanging on the brink of default, seem bleak.

Mr. S. Farrukh Hussain Rizvi said despite difficulties vis--vis NPLs, future of Pakistan's banking Industry was bright and with better planning and research, issues could be settled.

He said none of the directors of Soneri Bank had defaulted in payment of any loan to banking company, DFI or NBFC. He said the bank had initiated a comprehensive risk management programme for managing credit, market, liquidity, and operational risk.