ISLAMABAD, May 30: Securities and Exchange Commission of Pakistan (SECP) has decided that it would not issue guidelines in respect of Non-Bank Financial Institutions (NBFIs) similar to those contained in the SBP Circle 29 regarding non-performing loans (NPL).

While stating this, the SECP spokesman said the Commission after in-depth discussions with the stakeholders, had come to the conclusion that NBFIs do not require such guidelines by dint of the peculiar nature of their functions as distinct from banks.

Nevertheless, the SECP Chairman, Mr Abdul Rehman Qureshi has stressed on the Leasing Association of Pakistan (LAP), Modaraba Association of Pakistan (MAP) and Investment Bank Association of Pakistan (IBAP) representing the NBFIs to discharge their responsibilities professionally, keeping in view the spirit of the said circular and act in the best interest of the economy.

In recent past, the spokesman recalled, various trade bodies including FPCCI, Aptma, Lahore Chamber of Commerce and Industry (LCCI) and others had approached the SECP with the request to consider the adoption of SBP Circular BPD 29 regarding guidelines for write-off of irrecoverable loans and advances to be applicable to NBFIs.

The reason cited by them for this request was that their members had been facing difficulties in settling their claims with NBFIs in an attempt to revive the sick units.

The SECP, therefore, invited these trade bodies and officials of LAP, MAP and IBAP to discuss the legality and modalities involved in the proposal.

The representatives of FPCCI stated that the SBP Circular was issued to facilitate the banks in clearing their stock of irrecoverable NPL and strengthening their balance sheets by way of eliminating these NPLs where the chances of their recovery were negligible.

Representatives of LAP, MAP and IBAP, however, put up a strong defence against the universal application of BPD 29 claiming that the situation with regard to NBFIs was quite different.

The extension of the said circular was unwarranted in their case because neither the non-performing loans of the vast scale found in banks exist in the case of NBFIs, nor the chances of their recovery are remote, it was contended.

These bodies, they pointed out, had their own system, boards of directors and various committees to decide the matter keeping in view the commercial interest of the respective institutions in mind.

Further, unlike banks, the leased assets remain the property of the lessor and can be repossessed in case of default. Moreover, all the NBFIs are not under-provided and, thus, the question of strengthening the balance sheet footing was not applicable in their case.

After careful review of the discussions during the meeting, the SECP has decided that the issuance of any guidelines on write- offs for NBFIs was unnecessary.

Instead, the Committees constituted for the purpose may send their proposal regarding settlement of debt obligation to the respective association and the association, in turn, would act as a facilitator and pursue the case with the Non-Bank Financial Institutions concerned and endeavour to resolve the matter amicably.