KARACHI: In 2023, the banking sector’s non-performing loans (NPLs) grew by 7.6%, or Rs70 billion, according per data issued on Tuesday by the State Bank of Pakistan (SBP).
High interest rates and slow economic growth have contributed to an increase in defaults, which is indicative of persistent financial difficulties in practically every sector of the economy. Political unpredictability and economic uncertainty hindered progress in every sector in 2023.
The greatest defaulter, according to data covering December 2022 to December 2023, was the textile sector, which made a substantial contribution to the overall amount of non-performing loans (NPLs), which increased from Rs924.04 billion in 2022 to Rs994.82 billion by the end of 2023. This increase indicates a 7.6% increase in non-performing loans, underscoring the unsettling year the economy had.
Non-performing loans rose by Rs18 billion in the textile industry alone during the year, to a total of Rs182 billion.
This industry, which is important as the biggest export earner for the nation and a significant borrower, has been especially vociferous through the All Pakistan Textile Mills Association. The group claims that the government’s record interest rates of 22 percent and hefty utility prices seriously hinder its ability to compete in international markets.
Increased non-performing loans linked to slow economic development and high interest rates
In addition, the amount of money borrowed by the private sector from banks fell sharply, from Rs1,329 billion in the previous fiscal year to just Rs208 billion in 2023, as businesses were put off by the expensive terms and increased risks.
Increases in non-performing loans were also recorded by the automobile and agricultural sectors. Due to high interest rates and ongoing economic instability, defaults in the car sector grew to Rs19.3 billion, while defaults in the agribusiness sector increased to Rs65.9 billion.
Regarding the SBP’s potential interest rate cut in its upcoming monetary policy announcement, which is scheduled on April 29, bankers and analysts are cautiously optimistic.
The business community, however, is still skeptical that the economy can be revived with a 100–200 basis point cut. Many are calling for a large reduction, arguing that rates have to be decreased to 10–15 percent in order to lower operating expenses and promote economic recovery.
