ISLAMABAD:
The federal government decided on Friday to convert Rs106.4 billion worth of loans acquired by two state-owned banks from the State Bank of Pakistan (SBP) into equity aimed at restructuring the financial institutions that were performing below par for the last many years.
The decision to convert the money borrowed by Zarai Taraqiati Bank Limited (ZTBL) and House Building Finance Corporation (HBFC) into equity was taken during a meeting between officials of the SBP and Ministry of Finance.
ZTBL owes Rs93.2 billion including Rs38.7 billion in interest payments while HBFC’s liabilities are estimated at Rs13.2 billion. An interest payment of about Rs2 billion by HBFC to the central bank has not been converted into equity.
Finance Minister Ishaq Dar and all three major stakeholders – the SBP, ZTBL and HBFC – unanimously agreed to convert the loans into equity and on immediate payment of interest by HBFC, said a handout issued by the finance ministry after the meeting.
However, the agreement was subject to necessary
approval by the SBP board
of directors, said the ministry. All legal, corporate
and administrative requirements will be completed by July 21.
Besides the finance minister, the meeting was attended by SBP Governor Ashraf Wathra, Finance Secretary Dr Waqar Masood, Securities and Exchange Commission of Pakistan Chairman Tahir Mahmood, ZTBL President Talat Mehmood and HBFC Managing Director Pervaiz Saeed.
The government took the step to resolve the 15-year-old issue after the International Monetary Fund asked the authorities to improve the financial health of state-owned entities. ZTBL, HBFC and SME Bank have been in trouble since long.
According to an official of the Ministry of Finance, the resolution of the matter will improve liquidity in the banks besides improving their capital requirements.
“The old outstanding issue was hampering the performance of both the critically important financial institutions,” the finance minister said.
In line with the priorities of the political leadership, Dar said, the government would like to strengthen the two institutions so that they could aggressively market their products and provide facilities to the farmers and ordinary people for house-building.
HBFC owed Rs13.2 billion since 2006 and was unable to clear its overdue credit line. It was neither doing any business for the last many years nor recovering its loans from the defaulters.
Its salary bill was consuming whatever meagre earnings the bank was generating from the repayment of house-building loans.
ZTBL had to repay Rs93.2 billion to the SBP, including principal of Rs54.5 billion and markup of Rs38.7 billion, for the last 15 years. Poor balance sheet of the bank has hampered its progress and financial standing.
Dar said it was very unfortunate that both these important institutions had poor balance sheets and were not performing up to expectations.
Credit for farmers and sustainable agricultural growth were the government’s budget strategy preferences and a number of initiatives had been announced in the budget to boost the agriculture sector, he said.
On the other hand, the house-building industry is also an important catalyst for economic turnaround in the country.
Speaking to the managements of ZTBL and HBFC, the finance minister emphasised the need of a new beginning with a new management and board to aggressively market their products and a task force should be constituted for recovery of non-performing loans.
He expected the new managements to strengthen and restructure the institutions and undertake reforms with the objective of making them vibrant state-run banks with robust balance sheets.
Published in The Express Tribune, July 12th, 2014.
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