ISLAMABAD, April 24: The non-performing loans (NPL) of the nationalized commercial banks (NCBs) have increased to Rs109 billion from Rs99 billion last year, showing an increase of more than 9 per cent.
Besides this rise in NPL portfolio, the World Bank has raised doubts over performance and seriousness of the government towards revival of the country’s sick industrial sector.
It has also identified a number of grey areas in the functioning and success of the organizations — CIRC and SIRC — which were created particularly to revive the sick industrial units.
If the NPL of assets acquired by the Corporate and Industrial Restructuring Corporation (CIRC) is also included, the total NPL touched Rs174 billion on September 30, 2002, the bank’s draft report noted.
The impact of this industrial restructuring exercise is negligible on the national or sector level and also on the restructured firms. From the information obtained from the banks in respect of 103 projects, only four projects with total outstanding of Rs802 million that were earlier closed, are now stated to be operational. Only 455 jobs have been made available by these projects.
The bank stated that there appears to be little “revival”. The cause of default in the first, have neither been addressed nor resolved. Post-rescheduling monitoring is left to the banks, which generally do not take notice of these and react only in case of future default in repayment.
In case of successful rescheduling of debt, a project is classified as “revived”, irrespective of whether the project is operational or close at the time of application by the borrower. In case of no resolution, the project is classified as “not revived”, even though already operational. Subsequent information in the form of operating statistics and accounts is not available with the SIRC (committee for revival of sick industrial units).
Expressing concern over future viability and renewed distress of the projects processed by SIRC, the bank said there would generally appear to be little increment in the value of the project. No track is kept of financial or operational details of the projects after revival.
While the advances have declined over the year, the NPL has increased both in absolute terms as well as a percentage of the advances. The NPL of private banks in Pakistan was indicated at 10.29 per cent and that of the foreign banks at 6.13 per cent of advance.
The NCB’s total NPL of Rs109 billion represented 27.24 per cent of Rs402 billion advances. During the same period last year, NPL was at Rs99 billion and represented 24.36 per cent of Rs408 billion advances.
The bank noted that although the issue of resolution of the infected portfolios has drawn the attention of financial and economic managers since long, “only feeble attempts have been made in this direction so far”.
The CIRC’s mandate, says the World Bank, includes only a fraction of the total NPL and even if it completed its mandate, there will be a considerable amount of NPL left over with the financial institutions.
So far, the CIRC has acquired cases of Rs55 billion only and made sales of Rs2 billion. In its present form, CIRC cannot be expected to deal with a substantial part of the stock of NPL in the public sector financial institutions (FIs). “Moreover, it is probable that the stock of NPL with the FIs would in fact increase in future”, the bank said.
The CIRC has less than four years remaining to run under its sunset clause. At the present rate of progress, the sunset clause does not appear implementable. Other factors remaining the same, future settlement or sales of cases will take longer due to their legal and factual complexity.
