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KARACHI: Under the State Bank of Pakistan (SBP) relief package, banks and DFIs have accepted over one million application for loan deferment and restructuring and overall some Rs566 billion worth of principal loan payments have been deferred by one year to provide financial relief to the businesses during the COVID-19 pandemic.

On March 26, 2020, the State Bank of Pakistan (SBP) and Pakistan Banks Association (PBA) announced a comprehensive relief package for borrowers and customers of the banking sector to ease their financial difficulties during the pandemic and lockdown.

Under the relief package, banks and DFIs were asked to defer the payment of principal on loans and advances by one year to cope with the impact of COVID-19. Borrowers will, however, be required to service the mark-up amount as per agreed terms and conditions.

As per relief package, the deferment of principal will not affect borrowers credit history and such facilities will also not be reported as restructured/ rescheduled in the credit bureau's data. To avail this relaxation, a borrower was required to submit a written request to the banks before 30th June 2020. As per SBP estimates the total amount of principal coming due over the next year is about Rs4.700 trillion.

SBP's relief package has been appreciated by the businesses particularly SMEs as a large number of borrowers are benefiting from relief package by extending loans principal repayments by one year.

According to latest data released by SBP, banks and DFIs have deferred principal repayment of loans amounting to Rs566.183 billion of over one million borrowers to facilitate them during COVID-19.

As on June 26, 2020, overall, some 1.12 million borrowers with Rs2.215 trillion outstanding amount have approached banks and DFIs to avail financial relief announced by the SBP. Out of received applications, since the announcement of scheme some 1.045 million requests were approved by the financial institutions to support the business in this difficult time. During the period, banks have also allowed Restructuring or Rescheduling Rs112.823 billion loans.

Under the package borrowers from corporate, consumer, agriculture, SMEs and microfinance sectors can avail deferment of principal amount for one year while continue servicing mark up. They can also apply for rescheduling/restructuring if they are not able to service mark-up payment.

It may be mentioned here that under the relief package, regulatory criteria for restructuring/rescheduling of loans have been temporarily relaxed till 31st March 2021.

For borrowers whose financial conditions require relief beyond extension of principal repayment for one year, SBP has relaxed the regulatory criteria for restructuring/rescheduling of loans.

The loans that are re-scheduled/restructured within 180 days from the due date of payment will not be treated as defaults. Banks would also not be required to suspend the unrealized mark-up against such loans. In addition, the timeline for classification of "Trade Bills" has been extended from 180 days to 365 days.

In addition, the capacity to borrow from banks for individuals is limited by their capacity to bear the burden of debt, defined in terms of a percentage of their income and known as a Debt Burden Ratio (DBR). SBP has relaxed the DBR for consumer loans from 50 percent to 60 percent. This measure will allow about 2.3 million individuals to borrow more from banks in this time of need.

Copyright Business Recorder, 2020

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