Information about loan write-offs

Public information about loan write-offs has usually been a matter of contention in Pakistan. This matter hit the headlines recently when the State Bank was reported to have refused the request of the Senate Standing Committee to provide details of written off loans during the last five years. Refuting the contents of the report on 14th December, 2016, the SBP asserted that it had never refused to provide such an information of banks to the parliament. In fact, such an information was mandatory for banks to disclose for amounts equivalent or above Rs 500,000 in their financial statements. The Senate had sought identification of borrowers of Rs 5 million and above from whom the loans had been recovered as well as the names of those whose loans had been waived off. The SBP responded that banks did not waive off loans amounting to Rs 5 million and above during the aforesaid period. However, consolidated information about the amount of loans disbursed and recoveries made during the past five years was provided. The names of individual borrowers during the period were not disclosed due to legal provisions of Section 33-A of the Banking Companies Ordinance, 1962 and Section 9 of the Protection of Economic Reforms Act, 1992 which bars the SBP from showing customers' information. The State Bank also clarified that it would "keep providing all information permissible under the law."
We feel that the response of the SBP should be enough to satisfy the Senate and there will be no further discussion on the subject to malign the State Bank in unnecessary controversies in order to allow it to concentrate its efforts on its assigned job to ensure macro-economic stability and growth in the country. It is also heartening to see that the SBP is working strictly in accordance with its legal jurisdiction and not prepared to meet the demands that are lawful. The relevant laws as quoted by the SBP have been prescribed with a found to be illegitimate and unlawful. Secrecy of accounts, whether those of borrowers or depositors, is the fundamental principle of the banking system which should not be allowed to be violated except in exceptional circumstances. Otherwise, every citizen who is a client of a bank will stand exposed before all and sundry and would be subject to criticism even by those who are remotely related to that person. That is why secrecy of accounts is guaranteed almost all over the countries and access to their details could only be allowed by the relevant courts. However, it could be argued that information about the borrowers and their accounts should be more readily and easily available to the parliament and in some cases even to the general public. Such a case could be made on the basis that naming and shaming of defaulters of bank loans by publicising their names could reduce the level of written-off loans as they will be afraid and embarrassed to find themselves on such a list. Top level government functionaries who had helped the defaulters to get the write-offs could also find themselves in deep waters and, therefore, try not to interfere in banks' affairs. In any case, it needs to be remembered that the phenomenon of written-off loans is a part and parcel of banking industry due to the very nature of its business. Every bank should make its best efforts to appraise the loan requests with utmost care and disregard outside pressure but there cannot be absolute guarantee that all the loans would be fully repaid with interest. Even the best of businesses could go under at times. In the instant case, the SBP could, however, be legally obliged by an act of the parliament to reveal the names of borrowers who got their loans written-off, equal to or above the amount of Rs 25000 or so. Pros and cons of such a decision would of course be debated thread-bare in National Assembly and Senate with a view to articulating a balanced approach to the subject.