Credit share: NBP leads market in agriculture lending

The State Bank of Pakistan (SBP) has set the agriculture loan disbursement target at Rs360 billion for fiscal year 2013-14. In the first half of the year, banks disbursed Rs159.3 billion of the annual target. PHOTO: FILE

KARACHI: 

It is a pity that the share of agriculture — which employs 45% of the country’s labour force — in the outstanding loans to private-sector businesses was only 8.7% at the end of 2013.

In fact, the lack of enthusiasm on the part of banks is so pronounced that the central bank has to set annual targets for each bank for agriculture loan disbursement.

The State Bank of Pakistan (SBP) has set the agriculture loan disbursement target at Rs360 billion for fiscal year 2013-14. In the first half of the year, banks disbursed Rs159.3 billion of the annual target, meaning they achieved 44.2% of the target in the first six months.

“Agriculture is one of the most profitable segments for National Bank of Pakistan (NBP),” NBP Executive Vice President Shaheryar Qaisrani told The Express Tribune in a recent interview.

The disbursement target for NBP for 2013-14 is Rs59 billion. It disbursed Rs29.8 billion, or 50.5% of the target, in the first half of the year. The performance of NBP is impressive because only 12 out of 29 banks and other financial institutions could achieve over 50% of their annual disbursement target in the first half.

However, NBP’s performance seems outstanding in the last six months if viewed in absolute terms. The disbursement target that the central bank has set for NBP constitutes one-third of the amount that the big five commercial banks have to lend to farmers in 2013-14.

Other big banks with notable agriculture loan disbursement targets include Habib Bank (Rs38 billion), MCB Bank (Rs32 billion), Allied Bank (Rs28 billion) and United Bank (Rs23 billion).

“The mere fact that the SBP has set the highest agriculture loan disbursement target for us reflects that the central bank trusts the NBP and its wide branch network that exists in all parts of the country,” Qaisrani said.

Indeed, SBP data shows NBP went above its agriculture loan disbursement targets by 3.4%, 6% and 19.5% in the last three years respectively.

Almost 88% customers of NBP’s agriculture segment are based in Punjab while the share of Sindh-based customers is 11%, he noted, adding average loan size is slightly less than Rs200,000.

Bad loans

But what about the non-performing loans (NPL), which typically increase with the rise in credit disbursement? NPLs of NBP in the agriculture segment stood at 4.6% as opposed to the sector-wide average of over 13%.

This is despite the fact that the outstanding loans extended by the NBP amounted to a hefty Rs59.6 billion at the end of December 2013, which is 58.4% of the total outstanding agriculture loans of the big five banks.

In terms of outstanding agriculture loan, the NBP is second only to Zarai Taraqiati Bank (ZTB), which is a specialised bank with outstanding loans of Rs108.7 billion at the end of 2013.

Outstanding loans of the NBP increased Rs13.3 billion, or 28.8%, in 2013 as opposed to the increase of Rs8.3 billion (8.3%) that Zarai Taraqiati Bank recorded over the same year.

“We have brought down our NPLs from over 8% in early 2011 to 4.6% by the end of 2013 despite doubling the amount of outstanding agriculture loans over the same period,” he said, adding the contribution of the agriculture business in the bank’s bottom line is roughly Rs7.8 billion now, in contrast with less than Rs3 billion at the end of 2010.