Nov 8 - 14, 20

A review of some of the reports published in local newspapers regarding written off loans reveals many points that people having access to power corridors as well as corporate entities very conveniently get billions of rupees written off.

This country is getting poorer but its citizens are getting richer, mainly through ill-gotten wealth.

A citizen Imran Khan of Pakpattan Sharif has moved a petition through Noshab Khan, advocate, stating that huge amount of loans worth Rs50.84 billion were written off by the commercial banks during the last two years.

He contended that Pakistan owed $55 billion in external debt with an annual interest of two billion dollar and the country's internal debt as of March this year stood at Rs4.491 trillion. He said that this deplorable condition of Pakistan's economy could be improved if all the written off loans are retrieved from the defaulters irrespective of their status and connections.

Lately, during a hearing Chief Justice Iftikhar Muhammad Chaudhry remarked that the issue of waived loans on political basis could not be overlooked nor anyone would be spared in this regard. He also remarked, "Why don't people realise their responsibilities? The court cannot teach everyone."

Advocate Iqbal Haider, Counsel of State Bank of Pakistan read Governor Shahid Kardar's letter to the court which stated that the loans were written off during the last 8 years to save country's economy. He assured the court of assistance in this regard. However, he added that more loans are also likely to be waived due to slump in the international market.

Chief Justice Iftikhar Chaudhry said that 50 persons who had written off big bank loans were summoned but only eight of them appeared before the court. The CJP also admonished the State Bank officer, ...you have written off billions of rupees loans within two years. Writing off the loans is wrong," he said. "Don't you think that your actions should not harm the nation?" Justice Ramday, a member of the bench, said, "What the court can do when all are in same league".

State Bank of Pakistan being the regulatory authority issues the guidelines to all financial institutions for writing off irrecoverable loans. Before framing any incentive package to borrowers, the banks are bound to get approval of their respective board of directors and approval by the credit information bureau of the State Bank. All these write-offs further undergo the internal audit of respective banks and the central bank. State banks can also allow writing off loans for certain debtors, usually those that have little hope of paying off their loans.

The loan write-off is a normal practice in banking sector around the world; such moves benefit both debtors and lenders. If the borrowers, who suffer unexpected losses which are not covered by insurance or their insurance or guarantees are not enough to repay the debts, their loans are treated as non-performing assets and banks can offer certain incentives for recovery under permission of regulatory authority. Any write off policy initiated by a bank in Pakistan to offer its borrowers any incentive on irrecoverable loans or write offs and restructuring is for a fixed period of time which is widely publicised in media and apply to all borrowers.

In some cases bank loans are written off due to irresponsible lending which has become a biggest concern for banks in cases of personal debts. In countries like Pakistan irresponsible lending has been a common cause of loan defaults and write offs in past when banks were owned by government.

The first and the most legitimate being write-offs in agriculture or industrial sector where losses occurred due to natural calamities like floods, crop disease or sudden downfall in international markets which are beyond the control of borrower. This is done mostly in cases of government subsidised loans and write-offs help the sector to revive itself in order to protect the jobs and national produce.

The second category of write-offs is where the borrower is unable to repay due to unexpected losses. Banks offer to waive off a portion of interests rather than going through the lengthy process of litigations. This allows banks a speedy recovery in return for losing a part of their profits. The third and major reason for write-offs is irresponsible lending, especially personal loans, where the loans are not covered. Such write-offs are very common in countries where consumer credit is easily available.

According to details, Punjab Bank of Pakistan has written off Rs608.74 million while National Bank of Pakistan has written of Rs6,109 million loans during 1999 to 2007. Similarly First Women Bank, SME Bank, Industrial Development Bank of Pakistan and Bank of Khyber has written off loans. Moral of the Story

Those accused of getting their loans written off enjoy clout and get yet another loan disbursed conveniently because of legal lacunas. If one starts compiling data of written off loans since independence the amount may run into trillion of rupees. For nearly two decades commercial banks and DFIs operated under state control and it was national exchequer that was looted.

Institutions like NDFC, ICP, PICIC and IDBP to name few faced bankruptcy because of imprudent lending, failure in recovering the outstanding amounts and above all gross mismanagement and rampant corruption but no accountability.