KARACHI, Aug 25: Groups of so-called investors have surfaced whose job it is to rescue those bank borrowers who are on the verge of defaulting on bank loans. But because of having been a part of the financial underworld for some time they do things in their own peculiar ways — without involving senior management of banks.

Inquiries reveal that such investors have made strong contacts at the middle tier of big banks to know in advance about the lands and other properties pledged against the loans that may become overdue. Bankers say once the investors have extracted information about such lands and properties they strike a deal with the bank borrower in a manner that benefits both. Normally the so-called investor persuades the bank borrower to sell him the lands and other properties pledged against his loans at a cheap price but not cheaper than its book value in bank records.

The borrower does so to clear his bank liabilities and then hand him over the documents of the pledged assets. The investor then sells out the same assets to others at a higher rate — or better still hold them for speculative purposes. What makes the bankers share classified information with the outsiders should not be mind-boggling for those who know how money works it ways.

“I know a colleague who got a new mobile phone with a pre-paid card from an investor,” confided a mid-level officer of credit administration department of a big bank. The credit officer said the reason why bankers normally agree to share classified information with so-called investors is that it helps them serve their banks more efficiently. “If somebody is stepping in...to save our loans from becoming non-performing it seems logical for us not to discourage him,” he argued. “Getting mobile phones and all that is not that important.”

Most banks now have internal systems of identifying problem loans before classifying them as overdue and reporting to the SBP. People in credit administration department are supposed to keep an eye on such loans and see to how the borrowers could be helped in keeping his loan from becoming overdue. Any loan the principal or markup on which or both remain unpaid for 90 days or more becomes overdue and must be reported to the State Bank.

At end-June this year all banks combined had reported a total Rs162.32 billion overdue loans.

Inquiries reveal that many so-called investors offering help package to bank borrowers are those who until recently were speculating in foreign currency through illegal foreign currency/ commodities brokerage houses.

The joint action taken by Securities & Exchange Commission of Pakistan and the State Bank against these illegal entities have driven many speculators into the new business of “rescuing the bank borrowers.”

Sources privy to the business of these entities told Dawn that a part of their clientele is now speculating in landed properties and real estate — in a novel way i.e. in the name of rescuing the bank borrowers facing the threat of defaulting on the bank loans.

SECP recently moved courts against a number of so-called representatives of foreign brokerage houses that were being used for speculation and capital flight — and the SBP also issued notices to 55 entities involved in similar activities. These companies — some of whom have packed up but others have the guts to remain operational — used to open an account for a client asking him to place a certain amount of foreign currency in the same. That money was being used for speculation in global markets and the clients sometime got windfalls — and at other times lost whatever they had in their accounts. The companies that faced the SECP or SBP action had no licence from international brokerage houses — nor the law of the land allowed them to undertake this business.

Insiders say many players of this financial underworld are now operating in SITE, Korangi and North Karachi Industrial areas. “They have frontmen who negotiate with the bankers and those bank borrowers whose loans may fall overdue anytime and offer them a rescue package,” an insider told Dawn.

Real estate brokers say they are not aware of this new trend but they do not rule over its possibility. “Speculators may join hands with banks and their borrowers to transact transfers of lands and properties on paper to artificially boost their value,” said owner of Pak Estate Zubair Shaheen.

“Even if this is happening it is very new and its share in the overall speculative land and properties buying may be small,” he said. Estate agents say speculation in landed properties has slowed a great deal — if not stopped at all — as prices have reached the peaks.

Real estate and stock market have been key beneficiaries of an unusually high inflow of money into Pakistan mainly from overseas Pakistanis in the last fiscal year.