The share of net non-performing loans (NPLs) in loans extended by all banks and development finance institutions (DFIs) has increased from 5.7 per cent in the third quarter of fiscal 2012, to 6.1 per cent in the fourth quarter. The public-sector (PS) banks segment is the largest contributor to the quarterly rise in net NPLs. NPLs usually refer to loans that are in default, or are close to a default. The term net NPLs, on the other hand, pertains to those loans against which banks have yet to make provisions for credit losses. In most cases, a loan becomes ‘nonperforming’ after being in default for 90 days. According to the State Bank of Pakistan (SBP), net NPLs of public-sector banks stood at Rs98.2 billion as of June 30, 2012 up from Rs73.5 billion at the end of the third quarter of fiscal 2012 a quarter-on-quarter rise of 33.6 per cent. Meanwhile, the percentage of net NPLs in public-sector banks increased from 10.4 per cent to 12.7 per cent on a quarter-on-quarter basis. Summit Capital Senior Research Analyst Sarfraz Abbasi said the main reason for growing net NPLs in public-sector banks’ lending is their clients’ insufficient capacity to make loan repayments. “High interest rates, poor law and order, and the economic slowdown have gradually weakened the repayment capacity of companies that borrow largely from public-sector banks.” Although the segmented share of local private banks in the net NPLs of all commercial banks is still larger than that of public-sector banks, the former seem to have reduced their overall share considerably in the last quarter of fiscal 2012. Net NPLs of local private banks decreased by 7.6 per cent to Rs98.8 billion a quarter-on-quarter basis, and their share in the net NPLs of all commercial banks combined reduced from 58.9 per cent to 49.9 per cent on a quarterly basis. Nevertheless, the volume of public-sector banks’ cash recovery in the final quarter of fiscal 2012 is only a fraction of their net NPLs, which total Rs98.2 billion. According to Farhan Mahmood, who serves as head of research at Topline Securities, the rise in net NPLs of public-sector banks is largely attributable to power-sector companies, which borrow heavily from the former. From gulftoday