ISLAMABAD, AUGUST 1: In order facilitate Pakistan International Airlines’ (PIA) privatization, the State Bank of Pakistan (SBP) has declined to discharge guarantees denominated in dollars and loans totaling Rs. 268 billion from commercial banks.
Subject to SBP’s waiver, the Ministry of Finance and commercial banks have decided to treat this debt as a fresh loan starting on January 1, 2024. A national newspaper stated that the central bank has demonstrated reluctance to provide this exception.
Commercial banks signed into this agreement knowing that they would be protected from losses by regulatory coverages, including exemptions. A term sheet between PIA Holding Company Limited and syndicated financiers dated March 28, 2024, served as documentation for this deal. Banks must use IFRS-9 to record modification losses and Expected Credit Loss (ECL) on government-guaranteed USD loans in order to comply with SBP requirements.
According to the SBP, funding to PIAHCL must be considered a new loan as of January 1, 2024, therefore modification losses shouldn’t be incurred. Nonetheless, IFRS-9’s fair value impact is still relevant, which might result in significant losses for the banking industry.
Reconsideration and full relaxation of IFRS-9 provisions for both PKR and sovereign-guaranteed banks have been sought by the banks from SBP.
