September 1, 2002	Sunday	Jamadi-us-Saani 22,1423

LAHORE, Aug 31: The State Bank Governor Dr Ishrat Hussain on Saturday said the banks were being encouraged to enter into “mortgage financing,” and in this regard the SBP was going to organize a big conference with development authorities, builders, banks, etc. He said: “What we’re doing is that we’re re-writing all consumer and mortgage financing regulations.”

He was addressing a seminar on the “Banking sector — Problems and prospects” organized by the Management Association of Pakistan .

“The recovery law has already been re-written to enable banks to recover the loans advanced without the intervention of courts. Besides, a tax incentive is also being offered and the ceiling of mortgage finance has been raised to Rs5 million from the previous Rs500,000,” he added.

In addition, the banks have also been allowed to issue TFCs to raise capital.

He said the net non-performing loans (NPL), of all the commercial banks, including nationalized banks, as percentage of their “fresh” advances have come down to just three per cent.

The governor said although the “gross” NPLs of the banks stood at Rs250 billion or 24 per cent of the entire advances, the “net” NPLs were Rs110 billion or 11 per cent of the total advances. But the quality of new advances in the recent months had considerably improved as was reflected by the “lower net NPLs, including those of nationalized banks, than overall international average.”

He stated the central bank had put through a series of reforms to weed out inefficient banks that do not come up to the expectations of depositors. He said the central bank had given two years to banks to double their paid-up capital to Rs1 billion from current Rs500 million. Those banks that do not fulfil the requirement would be forced to wind up. “Moreover, the banks have been asked to obtain their credit ratings so that depositors could know the risks that are associated with a particular bank.”

Furthermore, Dr Hussain said, “the majority shareholders, even if they own 100 per cent shareholding will not be allowed to have more than 25 per cent directors on the board. The step has been taken to promote strong corporate governance. Besides, we’ve also laid down criteria for selection of directors and chief executive of the banks.”

The governor said the audit firms which look after accounts of the banks have also been “screened” and two of the five big firms are barred from auditing the accounts of banks. The big five also do a lot of connivance, he added.

He also mentioned steps taken by the central bank to encourage banks to train human resource and promote online banking. He said a lot of progress had been made in two years in this direction as by 2004 most banks would be having online and automated banking.

Dr Hussain also gave detail of the measures taken to encourage financing for SMEs and agriculture sector. He said the commercial banks had raised credit for the agriculture sector by 24pc during the last fiscal year from the previous year and set higher targets for the current year. “We have redesigned the agriculture credit scheme.”

Speaking about privatization of the financial institutions, he said UBL will be out of door in a week and HBL by end October. By December this year, the financial assets under the public sector, he said, would reduce to just 20pc and the remaining would be in the hands of the private sector. He stated it would promote competition in the banking sector and make them efficient.