AMER SIAL
The non-performing loans (NPLs) of the domestic textile sector have reached Rs 197 billion nearly 26.3 per cent of the total advances of Rs 748.8 billion to the sector, an official source said quoting latest data of the State Bank of Pakistan.
The National Bank of Pakistan has advanced Rs 56 billion to the textile sector out of which 51.4 per cent around Rs 28.7 billion are categorized under NPLs, the source said quoting from Quarterly Performance Review of the banking sector, June 2016. This is the highest percentage of NPL to any sector for the National Bank.
The government, the source said, was under pressure from the textile sector to provide them relief from the banking sector. They wanted rescheduling of their loans and wavier or some kind of relief in the incurring interest on the loans.
However, the SBP was stressing that the equity holders in textile firms should make efforts to revive their businesses by investing from personal resources rather than depending on the government or banks for rehabilitation. The official incentive scheme should be linked to the sponsor’s contribution for rehabilitation of their businesses.
If non-operating textile units are revived through personal resources of the sponsors, then such companies should be provided tax holiday for five to seven years to revitalize the installed capacity, says one of the central banks proposal.
Most textile companies are over leveraged due to which they have high financial charges and low net profit. These companies have short term credit terms for longer period assets. In recessionary cycle, the companies are unable to meet their liabilities leading to financial distress.
The central bank has proposed to improve the capital structure of the textile companies, the government should encourage debt equity swap by the banks at prices higher than book value or the market value. The SBP should compensate banks for mark-to-market or book loss from the swap, another recommendation said.
The government team is of the opinion that the low value chain in the textile industry is the major reason of current crisis in the sector. There is lack of balancing modernization and rehabilitation (BMR) in the sector due to which operating efficiencies are not available during recessionary environment. The fluctuation in raw material, especially cotton and yarn could be curtailed by introducing commodity hedge futures.
