IN recent weeks, the National Accountability Bureau has summoned a number of businessmen to answer queries regarding their companies defaulting on loans obtained from a provincial bank in the mid-2000s.

This is despite the fact that some of the ‘defaulters’ have already gotten their loans restructured by the bank and have been regularly paying back the due amount. Others have been trying to get their loans rescheduled and obtained court orders to prevent the bank from taking any adverse action against them and their firms.

In a few cases, the NAB has also summoned former directors of the bank to explain as to why they had approved loans for the companies that then defaulted later on. This sounds bizarre.

In yet another case, the investigation into the privatisation of a major bank was re-launched after more than two decades despite the failure of any previous probe to establish any wrongdoing.

“None of these inquiries have been authorised by the State Bank of Pakistan (SBP), a pre-requisite for initiating such a probe,” claimed a senior executive of a Faisalabad textile company whose directors are also facing NAB investigations in a default case.

The SBP could not be reached to verify this claim, but a senior manager of the lending provincial bank told Dawn on the condition of anonymity that his bank had not asked the NAB to re-initiate inquiries into any of these cases. “The NAB is acting on its own on orders from the apex court,” he asserted.

Many consider the NAB’s interventions into ‘purely business dealings between debtors and creditors’ as harmful for the already deteriorating investment climate in the country, as the anti-corruption agency’s actions have spawned a sense of harassment among the business community in Punjab.

Mubashar Bashir, a chartered accountant who has overseen a few mergers and acquisitions, recalled a similar so-called accountability drive against businessmen by the Musharraf government, when many leading businessmen were put behind bars and treated like criminals for loan defaults.

“No distinction was made between wilful defaulters and those whose businesses sank because of changing government policies or poor business conditions in the county,” said Mubashar.

“The entire drive scared away both investors and bankers. It took quite some time before investors started borrowing and bankers began lending after the government rolled back the whole operation.” He believed that the NAB should not get involved in these matters unless it had evidence of corruption.

Lahore Chamber of Commerce and Industry (LCCI) President Ijaz A. Mumtaz agreed. “The criminal inquiries into pure circumstantial defaults always produce a negative impact on the businesses and the economy and are a waste of time and resources,” he argued.

“When businessmen and investors, who create jobs and earn foreign exchange, are subjected to such treatment, it sends a wrong signal to the market. Who will accept an offer to sit on the board of the bank in question if he knew that he could get caught up in such probes? The authorities must rethink this policy of harassing the business community. It will get us nowhere.”

Businessman Almas Hyder said thousands of businesses run into trouble at one point of their existence or the other.

“Some survive their losses while others don’t. Many companies collapse because of unfavourable domestic or global circumstances that are beyond their control, or a combination of both. Business-friendly governments always distinguish between genuine defaulters and wilful defaulters and help them get back on their feet rather than prosecuting them and eliminating their chances of revival.”

A director of another major textile company — which was thriving and fast expanding its global business until gas shortages hit the industry and the global financial crisis reduced the demand for textile products from Pakistan — said his company had never sought loan write-offs from any bank.

“We just need some time to recover through restructuring our loans. It will not be unprecedented. The (provincial) bank has allowed the same facility to others. Why single us out?”

He said three other private-bank creditors had rescheduled his firm’s loans. “The space allowed by one of these banks, for example, has helped our company retire the principal loan of Rs400m through our export earnings. We will return all the money we owe to the creditors if given a chance to recover. What will anyone [a creditor bank] gain from the closure of our factories?”

Almas felt that the solution to such problems lied in the implementation of a bankruptcy law on the pattern of the US. “In the US, the court-driven law allows companies in trouble to file for bankruptcies. The firm filing bankruptcy gets a specified time period for recovery. If the company still fails to revive, the creditors take over the company and liquidate it to recover their loans,” he said.

In Pakistan, the situation is quite the opposite. “If a business fails here, it’s owners and directors are treated as criminals and a long court battle ensues between the debtors and the creditors, which benefits neither of them.”

It is the fear of criminal charges that keeps many businessmen from declaring bankruptcy and they continue to accumulate losses till they default on their loans. “No law in Pakistan allows businessmen to exit from a business with dignity and honour,” said Mubashar.

“A simple circumstantial default is treated as a wilful default, setting in motion criminal investigations by government agencies like NAB, if the bank so wishes. The negotiations between creditors and debtors start with usual intimidation by bankers and the threat of criminal prosecution, without any consideration about the reasons for the default. Whether the creditor’s claim is justified or not is of no consequence.”

Published in Dawn, Business & Finance weekly, September 14th, 2015

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