Saturday, October 2, 2010

SBP developing strategy for settlement of loans

Karachi—Lending a strong supporting hand to the SMEs, microfinance and agriculture sectors which are badly damaged by the flash flood the write-offs of existing loans are under consideration where prospects of recovery are slim.

In this respect, the State Bank has constituted committees in the areas of SMEs, Microfinance & Agriculture and General Relief activities to develop a strategy for the settlement of existing loans and provision of fresh credit in the affected areas.

Explaining the remedial steps Shahid Kardar, Governor State Bank of Pakistan gas said that the State Bank generally discourages such interventions as they create market and price distortions, promote mis-allocation of scarce credit resources and have monetary implications. However, keeping in view the special circumstances, decision makers may wish to consider a combination of such activities for a limited period, say two years, for flood affected areas, with the cost to be borne by the Federal Government.

The Central bank in consultation with the Federal Government and donors is also deliberating on deferral of Loan Repayment for 2 years – Restructuring/Rescheduling of overdue loans and reduced Mark up for 2 years provided the interest differential between mark up charged and KIBOR (for banks) or Average Market Rate (for MFBs) is borne by the GOP for the period.Other recommendations of the committees including exemption from additional provisioning requirements for one year, rovisioning of fresh credit at subsidized rate through the SBP refinance window for 2 years at 8 percent per annum with a bank spread of 3%, Credit guarantee schemes on a 30% first loss sharing basis with funding support of GOP & multilateral agencies, besides expanding the scope of existing Microfinance Credit Guarantee Facility (MCGF) to raise the additional borrowing requirements of Rs 3 billion for fresh lending in affected areas by Microfinance Banks (MFBs) with the funding support of GOP and multilateral agencies.

Speaking at a Roundtable Discussion on ‘Damage Assessment of Floods and Implications for the Financial Sector’Shahid H. Kardar said that the recent floods – the biggest natural calamity in the country’s history – provide an opportunity for the banking industry to increase financial inclusion, diversify its products on sustainable basis and play its due role in rebuilding the national economy.

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