Loan write-offs: State Bank tells PAC to back off

SBP tells parliamentary panel to wait for a Supreme Court decision on a similar case pending since 2007.

ISLAMABAD:

State Bank of Pakistan (SBP) bosses have warned the public accounts committee not to advise banks and financial institutions to identify irregularities in their loan write-offs, because no one should expect their heads to question their own past decisions.

“How could banks question their own decisions to write off loans? Further, ultimately if the matter has to be referred to the Supreme Court Commission on Loans, then it is better to wait for the final outcome of suo motu case in write-off case,” said the SBP advice to PAC members to be handed over to them before the panel starts deliberation on Rs259 billion loans written off since 1971.

Supreme Court Chief Justice Iftikhar Mohammad Chaudhry had initiated a suo motu case in October 2007, according to which Rs54 billion had been written off during the Musharraf regime. The case is yet to be decided.

This is the first time any government institution has sent a written advice to the parliamentary accountability panel, urging it not to interfere in its affairs.

Giving details, the SBP report said that after the issuance of Circular 29, banks had settled over 50,000 cases, involving an outstanding amount of Rs74billion, adding that they had been able to recover just Rs11billion.

The scheme, it said, resulted in realisation of 15.51 per cent of outstanding loans.

The SBP has taken the position that the huge burden of non-performing loans was not only making bank operations unsustainable, it was also unnecessarily inflating assets of the banking system.

The Circular 29, it said, was issued to help banks get rid of these non-performing loans.

The SBP said that loans written off under the scheme did not have any negative impact on the national exchequer. The scheme mainly benefited small borrowers with outstanding amounts of up to Rs500,000.

Documents available with The Express Tribune show that apart from Rs259 written-off loans since 1971, the accumulated amount of such non-performing loans may dramatically surge as a SBP report compiled for PAC shows that 56,336 cases of non-performing loans worth Rs215 billion were still pending in courts.

Thus, such loans may aggregate to Rs475 billion mark.

Top economic managers, including Governor SBP Shahid Kardar have been directed to appear before PAC on Thursday to give explanations.

A three-member special committee, headed by PML-N MNA Zahid Hamid, will examine the SBP report on written off loans. MNAs Saeed Ahmad Zafar and Hamid Yar Hiraj are also its members.

The loans/NPL ratio, which reached about 26 per cent in 1999, is now within the manageable level of eight per cent, the report said.

It said that names of all beneficiaries of loan write-offs were part of public record and their names and national identity card numbers were given in the annual audited accounts of these banks.

Published in The Express Tribune, April 21^st, 2011.