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SECP not to issue guidelines to NBFIs for NPLs write-off

KARACHI (May 31 2003) : The Securities and Exchange Commission of Pakistan (SECP) has decided not to issue any guidelines for non-banking finance institutions pertaining to write-off.

The press release of SECP said that after in-depth discussions with the stakeholders, it has been decided that issuance of guidelines similar to State Bank of Pakistan's Circular 29 regarding non-performing loans (NPL) were not required for non-banking finance institutions (NBFI).

The SECP Chairman has stressed the need for the associations representing the NBFIs to discharge their responsibilities professionally keeping in view the spirit of SBP's circular 29 and that they should act in the best interest of the economy.

During the recent past, various trade bodies, including the Federal of Pakistan Chamber of Commerce and Industry (FPCCI), All Pakistan Textile Manufacturing Association (Aptma), Lahore Chamber of Commerce and Industry (LCCI), and others have been approaching the SECP and requesting it to consider the adoption of SBP Circular BPD 29 regarding guidelines for write-off of irrecoverable loans and advances to be applicable to NBFIs being regulated by the SECP, including leasing companies, Modarabas, and investment banks.

The reasons which these trade bodies have been citing in their requests to the SECP are that their members have been facing difficulties in settling their claims with NBFIs in an attempt to revive the sick units within the country.

In view of the above, the SECP invited these trade bodies and officials of Leasing Association of Pakistan (LAP), Modaraba Association of Pakistan (MAP) and Investment Banks Association of Pakistan (IBAP) to discuss the legality and modalities involved in the proposal forwarded by these trade associations.

It was informed by representatives of FPCCI that the SBP Circular was issued to facilitate the banks in clearing their stock of irrecoverable NPL and strengthening their balance sheets by way of eliminating these NPLs where the chances of their recoverability was negligible. Representatives of LAP, MAP and IBAP, however, put up strong defence against the universal application of BPD 29, claiming that the situation with regard to NBFIs was quite different.

Neither huge amounts of NPLs exist in the sector nor the chances of their recoverability are remote.

These NBFIs have their own system, the boards of directors and various committees to decide the matter, keeping the commercial interest of the institutions in mind.

Further, unlike bank loans, the leased assets remain the property of the lessor and can be repossessed in case of default.

Moreover, all NBFIs are not under-provided. Thus, the question of strengthening the balance sheet footing was not applicable.

After careful review of the discussions during the meeting, the SECP has held that issuance of any guidelines on write-off for NBFIs is not needed.

Instead, the Committees constituted for the purpose may send their proposals regarding settlement of debt obligation to the respective association namely LAP, MAP, IBAP etc, and the association, in turn, would act as a facilitator and pursue the case with the concerned NBFI and endeavour to resolve the matter amicably.

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