Pakistan’s bank loan recoveries due to the economic slowdown are better than many countries as merely 1.3% of total bank loans or Rs. 113 billion have been restructured till the end of June 2020, while an additional 6.8% of total loans or Rs. 566 billion have been approved for deferral of principal payment for one year, bringing the total delayed loan repayment ratio to 8.2% or Rs. 679 billion.

According to a report published by a think tank Tellimer, not many countries disclose the restructured loan situation, but compared to Kenya (13% loans restructured) and Nigeria (33% loans restructured), Pakistan appears to be in a relatively better position.

Businesses are facing challenging times worldwide and in Pakistan in the wake of the COVID-19 outbreak. The financial systems of countries including the government and central bank came up with the rescue or stimulation plans to avert the economic crisis.

If the same ratio is assumed for delayed loan repayments to total loans (i.e. 8.2%) and that 30% of these will ultimately translate into provisions, then this results in an equity hit ranging from 8%-19%.

The situation is evolving and the restructured loans are rising every week. The total loan exposure of banks to the borrowers that requested the relief amounts to Rs. 2.2 trillion (27% of total loans).

In addition, as per a survey conducted by the central bank in March/April 2020, banks estimated that around 29% of their books could be at risk. Nonetheless, the central bank’s relaxation schemes (principal deferrals and ease in restructuring rules) will mask the impact of loan stress in FY20, but the actual impact will likely be visible from the next financial year.

According to SBP Financial Stability Review, the banks maintained their performance till June despite the economic slowdown in relation to COVID-19 pandemic however if the situation gets worse in the remaining half, the banking industry might face serious challenges in 2021.

The post Pakistani Banks Are Handling Loans Better Than Kenya & Nigeria appeared first on .

Originally Published on ProPakistani.com

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