The Presidents/Chief Executive Officers,

All Banks

Dear Sir/ Madam,

CHARGING-OFF OF LOANS, ADVANCES AND FINANCES

1. 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:
   1. 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.
   2. 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.
   3. 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.
   4. For reporting and disclosure of charged-off NPLs, banks shall:
      1. maintain proper record of such charged-off NPLs;
      2. continue to report such charged-off NPLs to e-CIB/private credit bureaus as overdue; and
      3. give a disclosure of charged-off loans under a separate note in their financial statements as per ‘Annexure A’.
   5. The following cases shall not be eligible for charge-off:
      1. 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.
      2. 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.