Banks, DFIs asked to stop misuse of loans: Speculative activities
By Our Staff Reporter
KARACHI, July 24: The State Bank has warned the banks and DFIs against the misuse of loans extended by them to borrowers for investing in the capital market and real estate.
The banks and DFIs have been asked to take appropriate measures ensuring that the borrowed money should not be used in speculative activities.
Liberal credit policies have made it easier for borrowers to get money with less hassle and mostly the borrowed money is being invested in the capital market for quick returns.
“Misuse of loan proceeds especially their usage for speculative activities enhances the level of risk and consequently may result in loss for the lending bank,” said a SBP circular issued here on Monday.
The banks and DFIs were advised to ensure that loans were utilised for the stated purpose only.
The SBP said the banks and DFIs should be especially mindful of the risks of diversion of loans to real estate and capital markets for speculative purposes.
Moreover, loans obtained for export finance should be closely monitored to ensure that they were not diverted to other than the stated purpose, it added.
The SBP has recently reduced the rate for export financing by 1.5pc to 7.5pc. While its July 18 decision to increase the CRR and SLR limit has put more pressure on liquidity which has pushed up lending rates. This has resulted into big difference between interest rates for loans obtained by a borrower and exporter, which is prone to misuse of credit.
The total outstanding loans under the Export Finance Scheme (EFS) were Rs108bn while the loan disbursement during a year under the scheme was Rs270bn.
The banks and DFIs had been suggested to take suitable steps to check the misuse of loans.
It said that at the time of approval of a financing facility (fund based or non-fund based), the banks or DFIs would obtain a written confirmation from the client stating that the funds would be used for the stated purpose only.
The SBP also suggested that the banks and DFIs should develop an effective internal system to monitor utilisation of the loan facilities to prevent any diversion of funds.
