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 banks’
financial statements and shall instead be
kept in the memorandum accounts.
2. Banks
shall adhere to the following minimum prerequisites
for charging-off their NPLs:
i. NPLs are classified in the ‘Loss’
category on an objective basis for at least
five consecutive years, and banks have maintained
full provisioning there-against.
ii.
For NPLs with an outstanding principal
amount exceeding PKR 10 million, banks should
have filed recovery suits in the
court of law at least two years prior to considering
the charge-off.
iii.
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.
Further,
the senior management of the banks shall ensure that efforts for
recovery of the charged-off NPLs are not compromised
in any case.
iv. For reporting and disclosure of charged-off
NPLs, banks shall:
a. maintain proper record
of such charged-off NPLs;
b. continue to report such
charged-off NPLs to e-CIB/private credit bureaus
as overdue; and
c. give a disclosure of
charged-off loans under a separate note in
their financial statements as per ‘Annexure
A’.
v.
The following cases shall not be eligible
for charge-off:
a. NPLs, if any, in the names of related parties,
sponsor shareholders, directors, Chief Executive
Officers, and key
executives
of the banks or their family members and politically
exposed persons.
b. NPLs under litigation involving
any criminal proceedings.
3. Banks shall
follow their BoD’s approved policies
for charging-off NPLs against consumer loans.
4. For
writing-off of charged-off NPLs, banks shall
ensure compliance with the write-off instructions
issued vide BPRD
Circular No.
06 of 2007, BPRD
Circular No. 12 of 2014 and the requirements
of Section 33A of the BCO,
1962.
5. Please acknowledge receipt.
Enclosed:
Annexure A: Disclosure
for Charged-off Loans/Advances/Finances