KARACHI, June 7: The State Bank of Pakistan has made write-off policy more lenient for banks and allowed the board of directors of banks to even ‘skip’ some of the guidelines provided by the central bank in special cases, thus authorising the banks to take decisions in their own interest.
“In exceptional case(s) where banks or DFIs, on commercial considerations or for the purpose of cleaning the balance-sheet, are unable to comply with one or more of the (SBP) guidelines, may put up their case to board of directors for consideration,” said the circular.
The board of directors may then decide the case on merit and by recording reasons in writing for approval or otherwise of the case(s), said the SBP circular, adding these cases will be reported immediately to the Director, Banking Inspection Department for information.
Banking experts said the relaxation provided in the latest circular could not stop high banking officials to use this new relaxation for their professional or personal benefits.
“A banker can make a write-off for ‘commercial consideration’ which means write-off can be made just to please a good customer or hold the wealthy customer attached with a bank,” said a banking expert.
It can also result in corruption as the clause could be used for personal benefits, he said.
The relaxation could help banks to clean-up their balance-sheets but, at the same time, it gives option for corrupt minds to use the “commercial consideration” for personal benefits.
Bank loans have been a critical issue since 1990s and banks used to blame political influence for most of their bad loans.
The National Accountability Bureau (NAB) started investigations into defaults and write-off cases, but the process was stopped and the NAB was restricted to follow only those cases which are recommended by the State Bank. The SBP could hardly send any case during the last seven years.
The rules of write-offs have been gradually diluted. In a circular issued on July 16, 1999, the SBP said: “The write-off proposal is (should be) duly audited by the Internal Auditor who would be required to clearly indicate whether any deviation from the credit policy approved by the board took place in sanctioning the advances.”
The condition was relaxed in a circular issued on Feb 9, 2000. The circular said; “Auditing of the proposed write-off as proposed in the circular of July 16, 1999, does not envisage any recommendation or otherwise of the auditors but only require auditors to verify facts and figures as put forth by the concerned department.”
“There is no such requirement in the circular in question,” it added.
The latest circular says that the write-off of loans or advances, if any, in the names of directors or their relative or dependent(s) or concern(s) in which they have any interest of five per cent or more and in the name of chief executive of the bank or DFI shall require prior approval of State Bank of Pakistan (SBP).
In the earlier circular, there was no condition of five per cent or more stakes of chief executives or their relatives.
Banking experts said most of the details in the new circular regarding the write-off were repeated. However, the State Bank does not provide collective figures of write-off made by all banks and DFIs. However, the companies mention the write-off in their annual reports.
