Banking sector asset quality has deteriorated during the first half of this year due to the slowdown in economic activity. Sector profitability also has taken a hit from substantial impairment charges on gold loans as a result of tumbling gold prices, an earnings report showed.

According to Capital Alliance Limited (CAL) the Non-Performing Loans (NPLs) of the banking sector shot up by at least 72 basis points on average to 4.7 percent by the end of June 2013 from a year earlier.

Observing this falling credit quality, the Central Bank Deputy Governor, B. D. W. A. Silva recently said that more than 50 percent of the impact came from pawning delinquencies.

“We see some increase in the NPLs. Fifty three percent of this came from pawning. Banks are taking measures. But this increase is manageable. NPL ratios have slightly moved up because we saw a loan growth (which was also coming down) and an increase in the NPLs of pawning,” he noted.

The biggest increase in NPL was observed in PABC with 365 basis points (bp) to 7.8 percent following 114bp increase in Nations Trust Bank to 4.0 percent. In HNB, it  increased by 89bp to 4.6 percent, Commercial Bank by 67 bp to 4.0 percent, NDB by 54bp to 1.9 percent and Sampath Bank by 46 bp to 2.5 percent.