Banks to formulate strategy on written-off loans

SBP instructs banks and development finance institutions to work out strategy in response to written off loans.

KARACHI: The State Bank of Pakistan (SBP) has instructed commercial banks and development finance institutions to work out a strategy in response to the observations made by the Supreme Court regarding written off loans.

An official release issued by the SBP cited that a meeting of all such institutions was convened on Monday. The meeting, which was chaired by SBP Governor Shahid Kardar, discussed at length the issues pertaining to written off loans. The presidents and chief executives of banks informed the SBP governor that banks have already issued notices to defaulters in line with the directives of the Supreme Court (SC).

Representatives of various banks informed the central bank that a write off is undertaken after all remedies to recover have been exhausted. According to the release, they also pointed out that “a substantial number of borrowers, 47,911 to be precise, having loans of Rs500,000 and below were written off under a circular” issued by SBP. They also asserted that “a number of prominent industrialists were made to suffer jail sentences and large-scale liquidations or auction sales were carried out”.

The SBP revealed that “bankers said that they would consult their key managements and legal counsels and devise strategies with respect to the write offs and report to the SBP”. The participants said that “the Supreme Court may be informed that the litigation process with regard to the recovery of loans takes a lot of time”. “However, the meeting resolved that they are committed to adhere to the directives of the honourable Supreme Court to satisfy the apex court,” said the release.

Participants also expressed hope that SC’s initiative may provide an opportunity to formulate more stringent laws for the recovery of loans and to discourage “willful defaults”. A three-member bench of the SC comprising Chief Justice Iftikhar Muhammad Chaudhry, Justice Ghulam Rabbani and Justice Khalil-ur-Rehman Ramday is hearing a suo motu case regarding write-offs.

Published in The Express Tribune, October 26^th, 2010.