Surge in Bad Loans Poses New Risks to Pakistan Economy’s Revival

(Bloomberg) -- A quick economic revival may elude Pakistan’s economy as soured debt at the nation’s banks increases at the fastest pace in eight years, constraining their ability to boost lending.

Total bad debt rose by 23% in the year to June 30, while annual growth in loans slumped to a four-year low, data compiled by Pakistan’s central bank shows. Deterioration in the asset quality may continue as companies across the board -- from Toyota’s local unit to Power Cement Ltd. -- cut production while others, including Nestle SA’s Pakistan unit, shrink their workforce.

Interest rates, which have more than doubled to 13.25% since the start of 2018, are adding to the asset-quality woes by eroding borrowers’ ability to repay.The government estimates economic growth to plummet to 2.4%, the slowest pace in over a decade, in the year started July.

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