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Rival of sick industrial units: Pakistan corporate restructuring company formed

The Presidents and representatives of Habib Bank, National Bank of Pakistan, United Bank, MCB Bank, Allied Bank, Meezan Bank, Bank Al-Falah, Bank Al-Habib, Habib Metropolitan Bank and Faysal Bank have signed the shareholders’ agreement for the establishment of Pakistan Corporate Restructuring Company Limited (PCRCL). The agreement was signed at State Bank of Pakistan, Head Office. On this occasion, Dr. Reza Baqir, Governor of the central bank was also present.

Under the provisions of Corporate Restructuring Companies Act 2016 and with an initial Paid-up Capital of Rs500 million, the above banks have decided to establish the Corporate Restructuring Company (CRC), which is first such type of company in Pakistan. The objectives of the CRC are aligned with the initiatives of the Government of Pakistan to revive the sick industrial units.

It would be pertinent to mention here that the CRCs, under CRC Act 2016, are empowered to acquire, restructure and resolve the Non-Performing Assets (NPAs) of financial institutions and thereby reorganize and revive the commercially or financially distressed companies. The CRCs are specialized institutions with skillset in NPL resolution and corporate restructuring. These companies through aggregation of NPLs, will be well positioned to negotiate with the sick units and finalize the restructuring of loans vis-à-vis multiple lenders negotiating simultaneously with the borrower. It is expected that CRCs will evolve as vibrant economic agent, contributing towards the revival of sick industrial units and generating employment opportunities.

Total Non-Performing Loans of the banking industry were reported at Rs758 billion as of September 30, 2019. The amount includes the loans against such sick industrial units, which can be revived and rehabilitated, provided the NPLs are restructured promptly and the sponsors of the sick units also inject the fresh equity to demonstrate their willingness and commitment in the rehabilitation of sick units.

 

The Securities and Exchange Commission of Pakistan (SECP) has granted the license to PCRCL on December 31, 2019. State Bank of Pakistan appreciates the initiative of above banks and the supportive role of the SECP in incorporation and licensing of PCRCL. SBP is also engaged with the Federal Government to introduce amendments in the relevant laws and to strengthen the Banking Courts in order to take forward Government’s agenda of institutional reforms.

Reportedly, deposits of the banking sector grew by 10% in 2019 to Rs14.6 trillion. The deposit growth was better than last year’s growth of 8%. However, it remained lower than the 5-year average growth of 12%. Banks’ focus for deposit mobilization remained more towards investments compared to advances during the year given the high yields on government papers. As a result, investments grew by 16% to Rs8.8 trillion in 2019, with IDR increasing to 60% in 2019 from 57% in 2018.

Advances grew by just 3% in 2019 hindered by high interest rates and slowdown in overall economic activity. Over the past 3-years, advances grew at an average of 19%. Interestingly to note, advances growth remained subdued in 9M2019 with growth of just 1% YTD. However, the rate picked up in the last quarter to close at Rs8.80 trillion. As a result, ADR dropped to 56% in 2019 from 59% in 2018. Sector-wise, Textiles (12.5%), Energy (17%), Individuals (8.8%) and Agribusiness (8.1%) accounted for 46% of total advances.

As per the available 9M2019 numbers, advances to textile sector declined the most by 6.5% (Rs75bn), while advances to the energy, individuals and agribusiness sectors increased by Rs34 billion, Rs19 billion and Rs4 billion, respectively. The Currency in Circulation (CIC) in 2019 registered an increase of 19% to Rs5.39 trillion. Additionally, CIC as a percentage of M2 clocked in at 29% above the historic 5-year average of 27%. Going forward, we see deposit growth in the range of 10-12% and advances growth of 11-13% in 2020 at the behest of economic recovery and an expected decline in interest rates.

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