Overall net NPLs increased to 4.38 percent in 2012 from 0.70 percent in 2011. In 2011, net-NPLs were 0.34 and 16.95 percent in state owned commercial banks (SCBs) and development financial institutions (DFIs) respectively, whereas in 2012, the percentages stood too high as 12.82 and 20.4 respectively.
State owned commercial banks (SCBs) have achieved nearly zero percent of return on assets (ROA) over
the period of 2007 to 2012, which should have been more than 1 percent according to Basel- accord. In 2012, overall ROA in the banking sector was 0.60 percent whereas it was 1.3 percent in 2011. If these
trends continue, overall ROA in the banking sector might decrease to 0.55 percent in 2013. Similarly, overall ROE in banking sector was 14.3 percent in 2011, which reduced to 6.5 percentage point in 2012. Projection says that if the current trend of ROE in the banking sector persists, ROE might decrease to 6.80 in 2013. Reduction of ROE ratio in banking sector indicates that profits of share holder are declining gradually.
The share of percentage of classified loan to total outstanding loan has been increasing in every six months. At the end of September 2013, the share of percentage of classified loan tototal outstanding loan was 12.79 percent, whereas it was 11.91percent at the end of June, 2013. If the trend remains as usual then share of percentage of classified loan to total outstanding might increase to 14.21 percent at the end of December 2013. Finally, the interest rate spread has seen many ups and down in this year and in the month of October 2013, the rate was below 5 percent. But the fact is that, in April 2013, it was also seen below 5 percent and after that it increased as earlier trend. In both of the cases, it is seen that advances remain relatively too high and this is the obstacle of taking loan by the business community.
This section observes the disbursement, recovery, and trends of growth of credit to different sectors of the economy, such as private and public sector, agriculture, SME, and industry sector. Three problems have mainly gained prominence in case of credit disbursement. First, the amount of non-performing
loan is increasing, requiring higher allocation as provision. Second, lack of profitability is reducing the taxable income of the government from the banking sector. Third, state owned banks have continued to be dependent of recapitalisation from the government.
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