Before evaluating the charge-off (losses) for non-performing loans (NPLs) with an outstanding principal amount more than Rs. 10 million, the State Bank of Pakistan (SBP) instructed banks to file recovery actions in a court of law.
According to an SBP circular, top management of the banks must make sure that the attempts to recover the charged-off NPLs are never jeopardized.
Fully funded legacy loans make up a sizable component of the banking industry’s non-performing loans/finances (NPLs). Banks are permitted to charge off fully funded corporate/commercial and Small & Medium Enterprises (SMEs) NPLs in order to resolve the concerns pertaining to these historical NPLs. These charge-offs won’t provide any financial relief, and banks will still be able to pursue recovery from their debtors.
Charged-off non-performing loans, however, will remain in the memorandum accounts and will not be shown on the bank’s financial statements.
In accordance with the Board of Directors’ (BoD) authorized policy for handling NPLs and charged-off loans, senior management of banks and the BoD will keep an eye on the status of these loans and their recovery.
Banks are required to keep accurate records of these charged-off non-performing loans (NPLs); to keep reporting these NPLs to private credit bureaus and e-CIB as past due; and to disclose these loans in a separate note within their financial statements.
Published in Bloom Pakistan, July 25th, 2024
