Manufacturing sector records highest NPLs in 2020

The sector-wise breakdown of non-performing loans (NPLs) showed that manufacturing sector had recorded the highest rate among others such as agriculture, trade, tourism, construction and consumption. 

According to the data available through September-end, loans to the manufacturing sector had an NPL ratio of 9.0 percent, followed by 7.3 percent each for agriculture and trade, 7.1 percent for tourism, 6.7 percent for construction, and 5.2 percent for consumption.

Sri Lanka’s banking sector improved its asset quality as measured by the reported gross NPL ratio during 2020 despite the COVID-19 pandemic. They brought down the ratio to 4.9 percent by the end of 2020, from 5.1 percent at the end of 2019. 

More specifically, the licensed commercial banking sector NPL was even better at 4.7 percent than the broader banking industry, which consists of the specialised lenders as well. 

The specialised banks recorded a 6.9 percent gross NPL ratio by the end of 2020, which is also down from 7.1 percent in June and 7.0 percent in September, though little higher than 6.6 percent in December 2019.

The NPL performance in the banking sector is diametrically opposite to the worst case scenarios predicted by many including the rating agencies at the height of the pandemic. However, reported NPL ratios could hide the true NPL situation, as still there is a segment of loans under payment holidays. 

Meanwhile, some banks on their own accord extended relief by way of restructuring loans to their good customers who fell into trouble due to the pandemic. 

In any case, both as a result of timely involvement by the regulator as well as the robust risk mitigating measures by the banks themselves avoided in what could otherwise be a terrible situation for banks’ asset quality, to help emerge even better than 2019 levels.

The higher NPLs in key economic sectors such as manufacturing, agriculture, trade and tourism were also due to relatively less quantum of loans granted to these sectors last year as bulk of growth came from personal loans.

Even the overall private sector loan growth was nascent as it was only emerging last year.  The Central Bank data showed personal loans and advances growing by as much as 15.1 percent through December 2020, while the loans to the agriculture and fishing, industry and services grew by 3.9 percent, 4.7 percent and 1.4 percent respectively, compared to the same period in 2019. 

This persistently lopsided growth in loans in the economy has made the Monetary Board to contemplate bringing in specific loan targets for priority economic sectors under its broader 20 percent target set for micro, small and medium sized enterprises, which could be announced soon.