ISLAMABAD: A commission set up to probe bank loan write-offs from 1971 to 2009 has given a clean chit to politicians and civil or military bureaucrats.
In a report spread over three volumes and 2,200 pages, the commission put the amount of waived loans over the past four decades at Rs87 billion, including Rs84.621bn from 1992 to 2009 and Rs2.3bn from 1971 to 1991.
On Feb 20, the Supreme Court had ordered making public the report prepared by a former SC judge, Syed Jamshed Ali Shah, who headed the three-man commission.The court had initiated a suo motu proceeding on press reports that the central bank quietly allowed commercial banks to write off non-performing loans (NPLs) under a scheme introduced by former president Pervez Musharraf.
Soon after the 2002 elections, finance minister Shaukat Aziz and his financial team approved the scheme and subsequently the State Bank of Pakistan issued a circular.
Instead of launching an effective campaign for the recovery of NPLs, the SBP issued an incentive scheme to banks/DFIs (development finance institutions) in Oct 2002 for waiving loans of the organisations showing a ‘loss’ for three years.In its report, the commission presumed that the SBP circular is a valid piece of subordinate legislation till such time the apex court declared it otherwise.
Politicians restructure loans: The commission said it examined 740 cases, but despite its best efforts the banks and DFIs did not provide information on loans sanctioned or written-off on “other than business considerations”. Either the bankers are afraid of politicians as well as civil and military bureaucracy or are privy to sanctioning of loans or factually the quantum of such loans is not high.
It said of the 740 cases, a comparatively small number was directly related to well-known politicians and civil or military bureaucrats. Although there are some prominent names here and there who availed write-off concessions, the number and quantum is not large enough.
Mainly because, the report justified, written-off loans leave a politician defaulter and can lead to his disqualification under Article 63 of the Constitution, they do avail loans but prefer to have them restructured. Thus the cycle goes on and on.
In case of waiving relating to politician’s friends or supporters, the influential groups did exert pressure on the banks, but there is no direct evidence or it might have been destroyed at the very initial stage.
The report said bankers verbally admitted that influential groups interfered with at the “sanction” stage or write-off stage of the loans in case of NCBs (nationalised commercial banks).The bankers reported informally that shrewd influential persons or businessmen actually do not avail the facility of larger write-offs. They get their loans restructured (without write-offs) and with that arrangement chunks of interest are capitalised and made a part of principal loans and the cycle continues. They, therefore, never become defaulters.
Therefore it is very difficult to separate between politically influenced waiving off or on valid business reasons.
The report said although there is no tangible evidence on the files, it is implied that politically-influenced loans are initiated “top down” through verbal orders. Most of the loans processed bottom up in all probability are genuine or for bona fide business considerations since the culture of favouritism in the banking sector mostly is confined to providing jobs.
Past and closed transaction: It said the bankers, technocrats and the governments are of the considered opinion that the process of loan recovery in Pakistan is very slow. Besides, the chronic loan defaulting concerns can never pay back unless given some concessions to revive them.
The governments/SBP/banks and technocrats strongly believe that the written-off loans may be treated as past and closed transactions and instead of looking backwards, better laws be put in place so that in future the write-off takes place through courts. In this way the banks and regulator will not resort to summary incentive schemes to remove NPLs from their books, the report suggested.
The SBP has already submitted before the apex court that write-off is a normal routine in banks throughout the world and also cited the examples of Bangladesh, India, Malaysia, Indonesia and South Korea.
Independent SBP governor: The commission suggested that the SBP governor should be appointed on the recommendation of a representative parliamentary committee for a fixed and guaranteed tenure as available to the auditor general.
It said the SBP governor should act independently because the central bank enjoys wide and sweeping control over all banking institutions/DFIs in public and private sectors on monetary policy and long-term interests of country’s economy. The commission acknowledged that politicians tend to interfere with the central bank everywhere.It said the single most important reform in the banking sector is efficient and timely recovery of a bad loan because delay in recovery devalues the capital or its cost, pushes up the cost of credit and squeezes the return of shareholders and depositors.
The report suggested upgradation of banking courts since slower speed in deciding cases adversely affected their efficacy. The loans have to be visualised as depositor’s money and unless the recovery is put on fast track, the governments/SBP would be constrained to find shortcuts that sow seeds of favouritism or controversy.
Similarly, the liquidation process would succeed smoothly if the mortgaged property returns to the bank. Therefore it should be provided in the loan agreement that if the borrower fails to pay dues within six months after default and a restructuring arrangement could not be reached the mortgaged property would belong to the bank. Thus, an element of ownership will make it comparatively easier for the bank to sell it and for a prospective buyer to purchase it after a bid, the report said.
The commission suggested that the banks/DFIs badly needed to upgrade their systems, procedures and practices since the malaise of inefficiency, culpable delays and disorganised or missing inventory of record is too glaring. Firm policies and procedures, more training, better monitoring, third-party validation and an improved system of punishments and rewards will be helpful. Besides, the accounting systems be made uniform across the banks/DFIs as well as the protection of loan files and crucial data and its availability as and when required is equally important.
The commission has recommended proceedings for recovery of over Rs324 million from Abbas Engineering (Pvt) Ltd.
Habib Bank Ltd had waived in 2005 the loan due against directors of the company Riaz Laljee, Mrs Nazneen Laljee, M. Suleman Lakhani, Anjum Naseem, Syed Irfan Ahmed Meer and Imran Azim.
The commission recommended proceedings for recovery of over Rs224m from Abbas Steel Industries whose directors include Riaz Laljee, Mrs Nazneen Laljee and Amin Laljee. It also recommended action against the provisional credit committee by the SBP.
Referring to Global Marketing (Pvt) Ltd which got Rs1.07bn waived in 2003, the commission does not consider it a fit case for reopening in view of criminal and civil proceedings involved. The company’s directors include Fauzi Ali Kazmi, Rehana Kazmi, Tariq Omar and Raza Ali Kasmi.
The commission did not proceed against former provincial chief of HBL Younus Habib who waived off Rs2.47bn because the NAB has already settled the case and payments have been made albeit slowly but are to be completed till August 2014.
The commission suggested further proceedings for recovery of Rs1.56bn loan from Mercury Garments and action against the central executive committee of HBL. The company’s directors include Mohammad Asif, Mohammad Razi, Badaruzzaman, Mohammad Sualeh and Jawaad Sultan.
The commission recommended recovery of Rs571.3m from Service Fabrics. Its directors are Farooq Hameed, Mrs Uzma Hameed and Ijaz Hameed.
It recommended recovery of Rs628.6m from First Tawakkal Modaraba. Its directors are Abdul Qadir Tawakkal, Mohammad Rafiq Tawakkal and Ali Hussain Monney.
About Pak Land Cement (Dewan Group), which managed to get Rs1.6bn written off from the NBP, the commission concluded that no principal amount has been written off and very huge concessions have been extended by different banks involved. Yet the principal sum of loans seems vulnerable. It left any further action at the discretion of the Supreme Court.
Pakland Cement’s directors are Tariq Mohsin Siddiqui, Shamim Mushtaq Siddiqui and Mohammad Saleem Arif. The commission recommended further proceedings for recovery of Rs1.4bn from Siraj Steel Limited. Its directors are Chaudhry Mohammad Qasim, Ch Mohammad Azam and Ch Mohammad Akram.
The commission suggested further proceedings for recovery of Rs981m from Quality Steel Works Ltd. Its directors include Maj Gen Farhat Ali Burki, Arif Ali Khan Abbasi, Saeed Khan, Mohammad Ziauddin, Syed Babar Hussain and Mohammad Farooq.
The commission also recommended further proceedings against Ravi Agriculture and Dairy for recovery of Rs509.8m. Its directors are Mohammad Akram, Amjad Mustafa, Kaleem Haider Zaidi and Muzamil Khan Lodhi.