Presented to: Prof Munir Presented by:Aima Masood 00-30 Mcom Punjab College
INTRODUCTION OF NONPERFORMING LOAN a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full the quantity or percentage of non-performing loans (NPLs) is often associated with bank failures and financial crises . In fact, there is abundant evidence that the financial/banking crises in East Asia specially in Pakistan and Sub-Saharan African countries were preceded by high non-performing loans The current global financial crisis, which originated in the US, was also attributed to the rapid default of sub-prime loans/mortgages.
INTRODUCTION OF SECTION 15 Financial Institutions (recovery of finances) Ordinance 2001 which laid much more emphasis on the recovery of finances through section-15 Gives free hand to the banks to directly sell the secured properties With minor formalities and with certain modifications It extends to the whole of Pakistan It shall come into force at once
FEATURES OF FINANCIAL INSTITUTIONS(recovery of finance) ORDINANCE, 2001: The recovery of all kinds of loans at the time of the purchase or assignment of the subject loans, policies Seller or assignor of home loans to the purchaser The seller or assignor will not sell or assign any high- cost home mortgage loans to the purchaser or assignee or
The seller or assignor is a beneficiary of a representation Exercises reasonable due diligence at the time of purchase or assignment of home loans Limited to amounts required to reduce or extinguish the borrower’s liability under the high-cost home mortgage loan plus amounts required to recover costs
A borrower may bring an original action for a violation A borrower may, at any time during the term of a high- cost home mortgage loan, employ any defense, claim, Effective notwithstanding any other provision of law
STATUS OF NON PERFORMINGLOAN The banking sector’s non-performing loans (NPLs) continued to mount up, reaching all time high of Rs 653 billion high interest rate and slow economic activities. The experts revealed that NPLs of all types of banks including specialized banks and local private banks, foreign banks and public sector banks have posted some growth. NPLs of local private banks surged by Rs 16.351 billion to Rs 394.720 billion. With an increase of Rs 1.191 billion, NPLs of specialized banks reached Rs 35.788 billion level in June this year. During the under review, NPLs of public sector banks gone up by Rs 9.793 billion to Rs 196.399 billion. During the first half, NPLs of foreign banks have increased to Rs 7.883 billion from 7.574 billion. Although both components of NPLs have posted upward trend, however, major increase has been witnessed in the NPLs of banks. NPLs of all banks recorded an increase of Rs27.645 billion in first half. With current surge in NPLs of banks reaching the mark of Rs634.79 billion in June 2012, against Rs607.145 billion in corresponding period of last year. During the period under review, NPLs of DFIs have mounted by Rs 2.152 billion to Rs 18.2 billion in June 2012 from Rs 16.048 billion.
However, they said that now the State Bank of Pakistan had reduced its key policy rate by 1.5 per cent in recent monetary policy had created some hopes that in future NPLs might be declined. Banking sector is already deprived of higher NPLs and reluctant to expand financing to the private sector and preferring to invest in the government papers. The State Bank of Pakistan (SBP) in its report revealed that NPLs of banks and DFIs continue to grow and register a phenomenal raise of 5 percent in first half of current calendar year (January- June 2012). According to SBP, totaled NPLs of banks and DFIs have mounted to Rs 653 billion as on June 30, 2012 compared with Rs 623.19 billion as on December 31, 2011, depicting a surge of Rs 29.198 billion in first half of CY12. However, the increase in second quarter of current calendar year is much higher than first quarter of CY12, as an incremental of over Rs 2.25 billion was registered in NPLs of banks and DFIs in the first quarter of CY12.
CONCLUSION The main concern of the Financial Institutions is the recovery of their outstanding dues. The law under the discussion has sufficient and effective provisions for the recovery of the dues. If there are any bad debts that are due to their own doings, the Financial Institutions have unscrupulously disbursed finances undesirable people without obtaining sufficient securities.