- Sector gross NPL ratio eases to 12.8% in Sept., from 13.1% in Aug.
The asset quality of the non-bank finance institution (NBFI) sector further improved in September, continuing the momentum gained in August.
According to the latest data available, the NBFI sector gross non-performing loan ratio has further eased to 12.8 percent in September, from 13.1 percent in August. This ratio peaked at 14.14 percent in June, as the pandemic’s toll on the beleaguered sector was harsher than its larger counterparts in the banking sector. What’s currently happening with the asset quality matrices of both the banking and NBFI sector is diametrically opposite to the apocalyptic forecasts made for the two sectors by the rating agencies and other experts.
First Capital Research projected the NBFI sector NPLs to peak at 20 percent in 2021, with the gradual phasing out of the moratorium afforded to the pandemic-affected borrowers, in a recent report titled, ‘All Doom & Gloom For NBFIs’.
However, the sector’s asset quality woes are purely not related to the borrowers’ defaulting their loans.
The sector hasn’t seen a growth in loans for a long time, which could have blunted the asset quality impact to some degree.
The sector’s gross loan growth has been on a descent since end-2015, when the artificial credit-driven boom busted, forcing the then government to call for a bailout from the International Monetary Fund, which wanted the Central Bank to jack up rates and government to espouse austerity and slap taxes on everyone. “Deterioration of assets was mainly due to reduced loans and advances. The loans and advances portfolio reduced by 2.5 percent (Rs.27.3 billion) at end-August 2020, due to economic slowdown and restrictions on vehicle imports,” the Central Bank said. There is a potential for the sector’s non-performing loans ratio to further decline if the demand for credit set in with the desired growth in the economy from next year. Meanwhile, the ongoing financial sector consolidation exercise could also bode well for the combined entity asset quality as well as the industry due to larger asset bases and stronger balance sheets created post-merger. The banking sector asset quality meanwhile improved further in October to record a gross non-performing loan ratio of 5.2 percent, from 5.4 percent in August.