Dealing with Non-Performing Loans of Banks

, Dealing with non-performing loans of banks ISHRAT HUSAIN A lot of confusion and misunderstanding has been created by several commentators on the termination of non-performing loans (NPLs) of banking system. They take the absolute amount of much(prenominal) loans at the current point of time and compare it with the quantum of such(prenominal) loans in October 1999 and make a hue and cry that the berth has deterio enumerated because the quantum of NPLs has gone up. Such a simplistic approach creates doubts in the minds of common people about the commitment of the government and the State entrust of Pakistan towards recovery of these loans and distorts the true picture about this important issue. The flummox of this article is to inform the public about the exact order of magnitude of the problem, the trend over time and the measures the State Bank of Pakistan is winning to tide over this problem. The State Bank of Pakistan (SBP) is dealing with the NPL issue in a comprehensive manner through (a) improvement in coverage and reporting of NPLs (b) a proactive treatment of the live stock of NPLs (c) stemming flow of new NPLs and (d) improving the policy and regulatory environment. 2 It should be realized that the stock of existing NPLs will always amaze over time even if all the new loans being granted are fully serviced.

This will happen because the declared amount consists of foreland and design up. By its very definition, if the loan is not being serviced and is derelict by 90 days then the unrealized mark up will continue to be added up to the summarise amount of NPLs. For example, if on October 1999 the principal amount due on a NPL was Rs 1 one million million and the contracted mark up rate was 20 percent, then this amount will grow to Rs 1.2 million in October 2000, Rs 1.4 million in October 2001 and Rs 1.6 million in October 2002. So it end be seen that if the principal amounts overdue to the banking system in October 1999 were Rs one hundred sixty billion and these loans fell in the category of NPLs... If you want to thump a full essay, order it on our website: Ordercustompaper.com

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