KARACHI: The government has decided to convert Rs100 billion overdues of Zarai Taraqiati Bank Limited (ZTBL) and House Building Finance Corporation Limited (HBFCL) into the Group’s equity, said SBP report issued recently.

The State Bank and its subsidiaries, SBP Banking Services Corporation and National Institute of Banking and Finance Limited are collectively called the Group.

“In a tripartite meeting held on July 11, 2014 between Ministry of Finance (MoF), ZTBL and the SBP, it was decided that the total outstanding amount of Rs89.490bn, will be converted to an equity investment of the Group in ZTBL,” said the SBP report. Exposure to the agricultural and industrial sectors include Rs50.174bn and Rs1.083bn respectively, representing the cumulative government guaranteed financing of Rs51.257bn to ZTBL in addition to the unsecured subordinated loan to ZTBL amounting to Rs3.204bn.

The suspended markup of Rs35.029bn also included in the total amount of over Rs89.49bn.

“The entire exposure has been overdue since 2002,” said the State Bank report. The ZTBL has been among the banks facing huge defaults while the recovery was not significant.

Like most of the government owned entities, the ZTBT failed to improve its performance and could not come out from the huge default.

The report said the conversion process will be completed after meeting all legal and statutory formalities and the fair valuation exercise of the entity. It has also been decided that the entire outstanding amount of HBFCL will be converted into the equity of the Group.

The SBP report says this represents loan receivable from HBFCL against seven credit lines on profit and loss sharing basis. As of June 30, 2014, all of these credit lines are overdue since 2006 amounting to Rs11.242bn. These credit lines are secured by federal government guarantees.

“It was decided in a tripartite meeting among Ministry of Finance, HBFCL and the Bank (SBP) held on July 11, 2014 that the total outstanding amount of Rs15.690bn, including suspended markup/share of profit/loss of Rs4.448bn, after immediate cash payment of Rs2bn ie Rs13.690bn will be converted to an equity investment of the Group in the HBFCL,” said the SBP report.

This is also subject to completion of all legal and statutory formalities and the fair valuation exercise of the entity.

Published in Dawn, November 12th, 2014