KARACHI, Nov 13: The State Bank has issued guidelines for banks and development finance institutions aimed at bringing uniformity and consistency in the accounting and reporting pattern of their loans and advances.

The central bank has asked all banks and DFIs, through a circular (BSD-9), to observe certain guidelines for recording/reporting of loans/advances, accrued mark-up and non- performing loans in their books of accounts and in various returns.

The circular, issued on November 12, 2003, says that banks/DFIs shall observe these guidelines with effect from the date of this circular and not with retrospective effect. The State Bank has issued these guidelines after it had observed that banks and DFIs were using different approaches for recording their loans/advances.

The guidelines follow:

(1) Accrued mark-up should only be shown under the head of “Other Assets” and should not be made part of loans/advances. Moreover, no mark-up should be capitalized except in cases covered under a previous set of instructions conveyed to banks through a Banking Inspection Department circular letter of June 17, 1990. Further, as non-performing loans (NPLs) are sub-set of loans/advances, so no unrealized mark-up should be included in NPLs.

(2) Once a loan/advance is classified as NPL under the Prudential Regulations, it should be placed on non-accrual status and the unrealized mark-up already taken to income account should be reversed and kept in Memorandum Account. The subsequent mark- up should also be kept in Memorandum Account. The total amount of mark-up kept in Memorandum Account should be reported to the SBP as a footnote only for monitoring and information purposes.

(3) A non-performing loan/ advance should only be upgraded to regular status when bank receives payment of the loan’s overdue principal and mark-up and remaining payments are expected as scheduled in the loan agreement. However, the funds for repayment of overdue amounts should not be obtained through creation of a new loan/ advance from the same bank. The upgradation through rescheduling/ restructuring should be done in lines with the instructions contained in the Prudential Regulations.

(4) Moreover, to reduce the number of returns and to streamline data reporting in accordance with the new guidelines, the Quarterly Statement of NPLs being submitted by banks and DFIs has been abandoned. Banks/DFIs shall henceforth be required to submit the position of NPLs as Part-B of Quarterly Report of Condition on a new format, within 30 days of the end of each calendar quarter, with effect from the quarter ending December 31, 2003.