Circulars/Notifications - Banking Policy & Regulations Department  
 BPRD Circular No. 12 of 2014
November 24, 2014

The Presidents/ Chief Executives
All Banks/DFIs





Dear Sirs/ Madam,

WRITING-OFF OF IRRECOVERABLE LOANS, ADVANCES
OR FINANCING - CONSUMER FINANCING

                The State Bank of Pakistan regularly revisits its instructions in consultation with relevant stakeholders. Based on such review, the subject instructions as contained in BPRD Circular No. 8 dated November 21, 2013 have been revised as follows:

2. The irrecoverable / bad loans, advances or financing shall continue to be written off by the banks/DFIs with the approval of respective Board of Directors (BOD) under a well defined and transparent write off policy. The policy shall cover financial relief in the form of write off of principal, debited mark-up/profit and reversal/waiver/remission of undebited mark-up and other charges etc. The policy may cover peculiar situations such as widows, orphans and scenarios where natural calamities impair the prospect of recovery etc. The BOD at their discretion may delegate adequate and appropriate powers down the line to the President/Chief Executive Officer and other senior officers of the bank/DFI as they deem fit. The BOD shall ensure the transparency of the process so that loan, advance or financing is written off only when there are no realistic prospects of recovery. Besides, the BOD shall also ensure the prudent management of write offs/waivers under delegated powers and effective internal systems and controls to avoid any type of misuse of authority.

3. The financial relief, however, does not include financial reversals (such as credit card fee, annual charges, bank’s commission etc.) made by banks/DFIs as per their own policy/industry practices, on regular consumer loans/financing.

4. Before considering/processing of a write off proposal involving principal amount and/or debited mark-up/charges, the banks/DFIs shall adhere to following minimum guidelines:

i.) Every reasonable effort shall be made to recover the outstanding loan, advance or financing.

ii.) It shall be ensured that all liquid securities/collateral held by, and in possession of, the bank/DFI have been realized and sale proceeds thereof appropriated towards adjustment of outstanding amount. However, in exceptional cases, such as widows and orphans banks/DFIs may consider relaxation to this requirement under their policy.

iii.)
The latest valuation not older than one year, of securities and collateral in possession of the bank/DFI and that of fixed assets held as security for the loan, advance or financing shall be obtained at the time of write off of loan advance or financing. The valuation report shall clearly indicate therein, amongst others, the present market value as well as forced sale value. The valuation shall be conducted through an approved valuer on the list of Pakistan Banks Association. For outstanding principal amount of less than Rs. 2 million, valuation may be done by the bank/DFI itself, as deemed appropriate, in a reasonable and transparent manner. Further, for writing off of loan, advance or financing where outstanding amount of principal is below Rs.0.5 million, the requirement of obtaining latest valuation shall not be applicable.

5. The banks/DFIs shall submit a report to its BOD on quarterly basis with necessary details in respect of loans, advances or financing written off and waiver allowed.

6. The data reporting to eCIB would be in accordance with the data structure already provided for the purpose. However, only those cases shall be reported to eCIB as “Write off” that are part of an actual settlement or where the bank decides it as “Write off” on the basis of material grounds of its ir-recoverability as per its BOD approved write off policy. For the purpose of disclosure in annual financial statements under BSD Circular No. 4 of 2006, the entire amount of financial relief has to be disclosed as presently being done.

7. The write off of loan, advance or financing or waiver, if any, in the names of Directors, Chief Executives, Sponsor Shareholders of the bank/DFI or their family members as defined in Sub-Section (ff) of Section 5 of the Banking Companies Ordinance 1962, shall require prior approval of SBP.

8. The write offs allowed shall be reviewed by the internal auditor of the bank/DFI with special emphasis on the cases where written off principal is Rs.0.2 million or more.

9. The above instructions shall be applicable on write off of loan, advances and financing falling under Prudential Regulations for Consumer Financing including Housing Finance, except personal loans allowed for business purposes which shall continue to be governed by the BPRD Circular No. 06 dated June 5, 2007.

10. The above instructions will supersede the instructions contained in BPRD Circular No. 8 dated November 21, 2013.

Please acknowledge receipt.



Yours truly,

Sd/-

( Muhammad Akhtar Javed )
Additional Director

       
Home
About SBP
Publications
Economic Data
Press Releases
Circulars/Notifications
Laws & Regulations
Monetary Policy
Help Desk
SBP Videos
Feedback
Contact us
What's New?
Speeches
Online Tenders
Web Links

Educational Resources
Regulatory Returns
Library
Rupey ko Pehchano
Events
Zahid Husain Memorial Lecture
Careers
Sitemap
 
Best view Screen Resolution : 1024 * 768
Copyright © 2016. All Rights Reserved.