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031112
STATE BANK OF PAKISTAN - BANKING SUPERVISION DEPARTMENT
BSD Circular No. 9
November 12, 2003
The Presidents/ Chief Executives
All Banks/DFIs
Dear Sirs/Madam,
REPORTING OF LOANS / ADVANCES,
ACCRUED MARK-UP AND
NON-PERFORMING LOANS (NPLs)
It has been observed that Banks/DFIs are currently
using different approaches for recording their loans / advances, accrued mark-up
and non-performing loans (NPLs) in their books of accounts.
2) In order to bring uniformity and consistency in the accounting / reporting
pattern of banks/DFIs and also to adopt best international practices in this
area, it has been decided that banks/DFIs shall observe the following guidelines
for recording/ reporting of loans / advances, accrued mark-up and NPLs in their
books of accounts and various returns.
i) Accrued mark-up should only be shown under the head of “Other Assets” and
not made part of loans / advances. Moreover, no mark-up should be capitalized
except in cases covered under BID Circular Letter No. BID(Gen)2470/601-04-90
dated 17th June 1990. Further, as non-performing loans (NPLs) are sub-set of
loans / advances, so no unrealized mark-up should be included in NPLs.
ii) Once a loan / advance is classified as NPL under the Prudential Regulations,
it should be placed on non-accrual status and the unrealized mark-up already
taken to income account should be reversed and kept in Memorandum Account. The
subsequent mark-up should also be kept in Memorandum Account. The total amount
of mark-up kept in Memorandum Account should be reported to SBP as a footnote
only for monitoring and information purposes.
iii) A non-performing loan / advance should only be up-graded to regular status
when bank receives payment of the loan’s overdue principal and mark-up and remaining
payments are expected as scheduled in the loan agreement. However, the funds
for repayment of overdue amounts should not be obtained through creation of
a new loan/advance from the same bank. The up-gradation through rescheduling/
restructuring should be done in lines with the instructions contained in Prudential
Regulations.
3) The banks/ DFIs shall observe the above guidelines with effect from the date
of this circular and not with retrospective effect.
4) Moreover, to reduce the number of returns and to streamline the data reporting
in accordance with the new guidelines, the Quarterly Statement of NPLs being
submitted under Letter No. BPD (RU-51)/56/5187/2002 dated 8th April, 2002 has
been abandoned. Banks/ DFIs shall henceforth be required to submit the position
of NPLs as Part-B of Quarterly Report of Condition on the format attached, within
30 days of the end of each calendar quarter, with effect from the quarter ending
December 31, 2003.
Please acknowledge receipt.
Yours faithfully,
(JAMEEL AHMAD)
Director