Reduces lending to Rs 540.04b from Rs 546.80 in 2018
By M Jahangir Hayat
LAHORE: MCB Bank’s Non-Performing Loans (NPLs) have touched to a record high of Rs49.42 billion in 2019 from Rs 20. 37 billion in 2015, registering a growth of 142 percent in five years increasing the infection ratio, MCB Annual Report 2019 indicated.
As per the report analysis, the infection ratio of NPLs has soared to 9.15 percent in 2019 from 6.30 percent in 2015 while the NPLs recovery ratio has also fell to 84.85 percent in 2019 from 87 percent in 2015, the analysis report highlighted.
The MCB NPLs have also increased in 2019 to Rs 49.24 billion from Rs48.96 billion in 2018 registering a growth of 1.0 percent, showing decline in recovery ratio to 84.85 percent in 2019 from 85.68 percent in 2018.
The gross advances of the bank have soared to Rs 540.04 billion in2019 against Rs 322.32 billion in 2015. However, the bank has reduced lending in 2019 to Rs 540.04 billion from Rs 546.80 in 2015, the report further disclosed.
The MCB Bank Annual Report, however, explained that transfer of NPL stock from NIB Bank Rs. 29.650 billion has been the reason to increase the infection ratio to 9.47 percent as at December 31, 2017. In 2019 infection ratio improved to 9.15 percent due to substantial recoveries.
The quality of asset base has been one of the prime focus areas of the Bank and the significant recoveries posted in the last few years reflect the strategic focus of the Bank. The report said that the coverage ratio of the Bank has moved from 85.62 percent as at December 31, 2014 to 87.73 percent as at December 31, 2019 while NPLs classified in loss category constitute more than 93.04 percent of the NPLs base as at December 31, 2019. This specifies the adequacy of provision held in the books of the Bank.
The MCB Bank at the time of merger committed to use its experience to recover NPLs on the books of NIB. NPLs of NIB Bank at that time stood at Rs 27 billion with a gross loss ratio of 22 percent.
MCB Bank Media and Communication Head Raise Alvi was contacted by this scribe for the bank’s version, he declined to comment saying currently he has no experts available with him to explain the exact position of NPLs.
However, the banking sector experts are of the view that the effect of the high amount of NPLs is always multiplied because it causes a disruption in all banking activities. The high amount of NPLs can cause deterioration in the profitability, reduce the financial result and reduce capital base of the bank. At the same time, it is also a limiting factor for a bank’s future credit placements and its growth and development. Also, the inability to collect claims increases the risk premium of the banking products, raises the interest rates on loans, and thus also reduces the rate of credit growth.
They said the high level of NPLs will contributes to increase risk profile of the bank as the resolution of non-performing loans is a key challenge besides the credit activity is a core banking operation in banking system. The share of NPLs to total loans is one of the basic indicators for the quality of the credit portfolio.
They affirmed in order to minimise the negative effect of the increase in non-performing loans, banks lock out additional amount of capital, which remains trapped and reduces the rate of return on capital.
In this way, the NPLs have two main effects on the bank’s profitability. It changes the structure of its financial position by reducing the profit or increasing losses and slows down the rate of return on capital because capital is used as regulatory capital to cover the losses, they stated.
On the other hand, the deterioration of the indicator of return on equity in the corporate sector can cause an increase in NPLs, which confirms that the reduced profitability for companies could lead to a transformation of regular to non-performing loans, they highlighted.
Therefore, the resolution of NPLs is a necessary imperative for survival, prosperity and stable development of a banking institution, they concluded.