BR100 Increased By (0.01%)
BR30 Increased By (0.53%)
KSE100 Increased By (0.28%)
KSE30 Increased By (0.29%)
AGHA 6.38 Increased By ▲ 0.06 (0.95%)
BECO 4.35 Increased By ▲ 0.08 (1.87%)
BML 62.55 Increased By ▲ 0.10 (0.16%)
BOP 31.39 Increased By ▲ 0.16 (0.51%)
CNERGY 11.73 Increased By ▲ 0.14 (1.21%)
CSIL 5.91 Increased By ▲ 0.19 (3.32%)
FCCL 61.71 Increased By ▲ 0.17 (0.28%)
FFL 14.79 Decreased By ▼ -0.23 (-1.53%)
FNEL 1.24 Increased By ▲ 0.01 (0.81%)
KEL 6.32 Increased By ▲ 0.06 (0.96%)
KOSM 5.90 Increased By ▲ 0.34 (6.12%)
LOTCHEM 24.69 Increased By ▲ 0.01 (0.04%)
MLCF 103.93 Decreased By ▼ -0.15 (-0.14%)
NBP 173.32 Decreased By ▼ -1.96 (-1.12%)
NCPL 51.83 Decreased By ▼ -0.94 (-1.78%)
NPL 54.03 Decreased By ▼ -0.09 (-0.17%)
OGDC 315.87 Increased By ▲ 2.48 (0.79%)
PACE 9.26 Increased By ▲ 0.06 (0.65%)
PAEL 35.58 Decreased By ▼ -0.22 (-0.61%)
PIBTL 13.66 Increased By ▲ 0.19 (1.41%)
PPL 226.07 Increased By ▲ 4.26 (1.92%)
PRL 80.28 Increased By ▲ 1.20 (1.52%)
PTC 46.64 Decreased By ▼ -0.21 (-0.45%)
SSGC 23.82 Decreased By ▼ -0.05 (-0.21%)
TBL 9.24 Decreased By ▼ -0.07 (-0.75%)
TELE 7.55 Increased By ▲ 0.16 (2.17%)
TPL 24.54 Decreased By ▼ -0.57 (-2.27%)
TPLP 12.99 Increased By ▲ 0.48 (3.84%)
TREET 25.98 Decreased By ▼ -0.27 (-1.03%)
TRG 53.33 Decreased By ▼ -0.11 (-0.21%)

KARACHI: In order to facilitate banks to deal with the existing stock of Non-Performing Loans (NPLs) and minimize further build-up of NPLs, the State Bank of Pakistan (SBP) has directed the banks to develop a comprehensive NPLs Management Strategy, duly approved by their Board of Directors (BoD).

SBP has advised the banks to ensure the development and implementation of the Strategy within six months and banks are also required to appropriately follow the SBP’s Guidelines on NPLs Management Strategy, while developing the strategy.

The State Bank has also issued Guidelines on NPLs Management Strategy aimed to facilitate banks in reducing the stock of their NPLs and infection ratio.

Financial system shows steady performance: SBP

As per guidelines, the NPLs Strategy should encompass, at a minimum, time-bound quantitative NPL reduction targets and asset foreclosure targets duly supported, where appropriate, by a corresponding comprehensive operational plan.

The NPLs strategy and related operational plan shall be approved by the BoD and reviewed at least once in three years, or earlier in case of any material change.

Banks have been advised to put in place a monitoring system that appropriately updates the relevant staff, senior management and BoDs about the quantum, flows, chronicity, recoveries, settlement etc. of NPLs, and accomplishment of NPL reduction targets.

A framework of NPL-related key performance indicators (KPIs) may also be developed to allow the BoD and senior management to measure progress, which shall be reviewed by the BoD periodically.

As per guidelines, the banks shall also put in place a dedicated mechanism for reporting and monitoring charged-off loans. The BoD shall, inter-alia, review the movement of charged-off loans and their recovery status at least quarterly.

Moreover, the bank will report the detail of charged-off loans in the financial statements as per relevant regulatory requirements. The internal audit shall assess the implementation of the bank’s NPLs strategy. The findings/ deviations shall be reported to the Board Audit Committee (BAC) for seeking an independent view of the efficacy of the NPLs Strategy and enable the BAC to make informed decisions.

Banks need to reasonably calculate impact of the planned strategy on their financial standing and make necessary amendments in the NPLs Strategy if it significantly fails to achieve the desired objectives as envisaged

According to SBP, managing high and rising stock of NPLs involves financial and opportunity costs, which weigh heavily on the efficiency and soundness of the banks.

Copyright Business Recorder, 2024

Comments

Comments are closed for this article.