The
Presidents/ Chief Executives
All Banks/DFIs
Dear
Sirs/Madam,
REPORTING
OF LOANS / ADVANCES, ACCRUED MARK-UP AND
NON-PERFORMING LOANS (NPLs)
It
has been observed that Banks/DFIs are currently using different
approaches for recording their loans / advances, accrued
mark-up and non-performing loans (NPLs) in their books of
accounts.
2)
In order to bring uniformity and consistency in the accounting
/ reporting pattern of banks/DFIs and also to adopt best
international practices in this area, it has been decided
that banks/DFIs shall observe the following guidelines for
recording/ reporting of loans / advances, accrued mark-up
and NPLs in their books of accounts and various returns.
i)
Accrued mark-up should only be shown under the head of “Other
Assets” and not made part of loans / advances. Moreover,
no mark-up should be capitalized except in cases covered
under BID Circular Letter No. BID(Gen)2470/601-04-90 dated
17th June 1990. Further, as non-performing loans (NPLs)
are sub-set of loans / advances, so no unrealized mark-up
should be included in NPLs.
ii)
Once a loan / advance is classified as NPL under the Prudential
Regulations, it should be placed on non-accrual status and
the unrealized mark-up already taken to income account should
be reversed and kept in Memorandum Account. The subsequent
mark-up should also be kept in Memorandum Account. The total
amount of mark-up kept in Memorandum Account should be reported
to SBP as a footnote only for monitoring and information
purposes.
iii)
A non-performing loan / advance should only be up-graded
to regular status when bank receives payment of the loan’s
overdue principal and mark-up and remaining payments are
expected as scheduled in the loan agreement. However, the
funds for repayment of overdue amounts should not be obtained
through creation of a new loan/advance from the same bank.
The up-gradation through rescheduling/ restructuring should
be done in lines with the instructions contained in Prudential
Regulations.
3)
The banks/ DFIs shall observe the above guidelines with
effect from the date of this circular and not with retrospective
effect.
4)
Moreover, to reduce the number of returns and to streamline
the data reporting in accordance with the new guidelines,
the Quarterly Statement of NPLs being submitted under Letter
No. BPD (RU-51)/56/5187/2002 dated 8th April, 2002 has been
abandoned. Banks/ DFIs shall henceforth be required to submit
the position of NPLs as Part-B of Quarterly Report of Condition
on the format attached, within 30 days of the end of each
calendar quarter, with effect from the quarter ending December
31, 2003.
Please
acknowledge receipt.
Encl: Part-B