SBP analysing politically motivated loan write offs

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The State Bank of Pakistan on Friday expressed concern over the serious questions arising over written off loans worth billion of rupees and directed the banks and development finance institutions (DFIs) to immediately submit the complete record of the all such bank loans to the three-member judicial commission formed by the apex court.
The SBP is considering the possibility that the banks might have waived off billions of rupees in loans “without validity and justification” or because of political reasons.
“Serious questions have risen with respect to the written off, remitted, reversed, and/or waived off loans/advances/finances under BPD Circular No 29 dated October 15, 2002 or otherwise from 1971 onward,” the regulator observed in BPRD Circular No 08 issued on Friday.
The circular said, “The State Bank of Pakistan considered these questions against the possibility that the written off, remitted, reversed, and/or waived off loans/advances/ finances may have been allowed without validity and justification, or because of political reasons or considerations other than law or bona fide business considerations.”
The SBP directed the banks and DFIs to immediately submit the entire record of all the written off, remitted, reversed, and or waived off loans/advances/finances of Rs 2.5 million and above, for the period from 1971 to 1991 and Rs 25 million and above from 1992 onward to the commission.
The circular said the commission was constituted by the Supreme Court after a suo motu notice No 26 of 2007 for its examination and consideration as to whether the waivers were allowed because of considerations “other than law or bona fide business considerations”.
The central bank asked the banks and DFIs to ensure compliance of the above instructions and provide any and all assistance and cooperation to the commission.
“Comply with any general or special instructions of the commission,” the regulator said, adding that the banks must “ensure the meticulous compliance of the above and acknowledge the receipt”.
The directives have been issued by the SBP on the advice of the apex court to the presidents and chief executives of all the banks and DFIs, the SBP circular added.
The central bank’s directives came after lawyers of the state and other banks on Thursday submitted a draft in the Supreme Court for its approval to formulate and issue a new circular, BPRD Circular No 08, to the banks and DFIs for immediate submission of the data on loans waived off from 1971 onward to the commission.