THE Supreme Court ordered it earlier last week and so now the report prepared by a special commission to investigate allegedly tainted loan write-offs has been made public. Unsurprisingly, the report contains few bombshells. Many a politician, bureaucrat, general and politically connected individual managed over the past few decades to get substantial sums borrowed from commercial banks written off or rescheduled — most of it done well within the ambit of the law. But then the law was often specifically moulded to allow such preferential write-offs and rescheduling. Past sins, notwithstanding, what is the position today?
With the privatisation of most of the banking sector — of the big five banks, only National Bank of Pakistan is government-controlled today — the problem of loans, write-offs and rescheduled for political purposes has to a large extent been brought under control. Commercial banks, with shareholders who keep a close watch on financial results and with managements free from the kind of pressures rampant in the bad old days of nationalised set-ups, are more disciplined and better. In fact, the problem has been reversed to an extent in the past few years: with lending to the government such a lucrative proposition, credit to the private sector has all but dried up and desperately needs to be jump-started. Still, the problem has not disappeared. NBP is a banking behemoth in the Pakistani context and the provincial governments of Punjab, Sindh and Khyber Pakhtunkhwa all control their own banks. When the state controls a commercial bank, the possibility of problems creeping into the system is always high. The multi-billion-rupee scam that was Haris Steel unsurprisingly centred on massive loans granted by the provincial government-owned Bank of Punjab (though some private banks were also implicated in the scam).
Ultimately, where there is money to be made, there will be someone or the other who is willing to game the system to their advantage. The only real protection is to have a powerful banking sector watchdog. In this regard, the commission that prepared the report into the history of murky loans has made several important and sensible suggestions. For example, by granting the governor of the State Bank security of tenure and upgrading and speeding up the banking courts, oversight and punishment can be improved.