SBP Orders Banks to File Cases Against Loan Defaulters

The State Bank of Pakistan (SBP) directed banks to file recovery suits in the court of law for NPLs with an outstanding principal amount exceeding Rs. 10 million two years before considering the charge-off (losses). The senior management of the banks shall ensure that efforts for recovery of the charged-off NPLs are not compromised in any case, a circular issued by the SBP stated. Non-performing loans/finances (NPLs) of the banking industry presently include a considerable portion of fully provisioned legacy loans. To address the issues concerning these legacy NPLs, banks are allowed to charge off the fully provisioned corporate/commercial and Small & Medium Enterprises (SMEs) NPLs. Such charge-offs shall not constitute any financial relief and banks’ rights to recover from their borrowers shall remain intact. However, charged-off NPLs shall not appear on the bank’s financial statements and shall instead be kept in the memorandum accounts. The Board of Directors (BoD) and senior management of banks shall monitor the progress of charged-off loans and recovery thereof as per the BoD’s approved policy for dealing with NPLs/charged-off loans. Banks shall maintain proper records of such charged-off NPLs; continue to report such charged-off NPLs to e-CIB/private credit bureaus as overdue; and give disclosure of charged-off loans under a separate note in their financial statements. The following cases shall not be eligible for charge-off: Banks shall follow their BoD’s approved policies for charging off NPLs against consumer loans.