Banks with effective risk management

KARACHI: Performance of the non-performing loan (NPL) to advances ratio is evident from the fact that the privatised banks, which have effective risk management system, have less infected portfolio and also better average recovery rate, analysts said.

The ratio of NPL to the advances show that Allied Bank Limited and the MCB Bank Limited have managed to keep this lower than other three major competitors in the banking industry.

Allied Bank’s NPLs to advances ratio is 6.5 percent and that of the MCB Bank stood at 8.62 percent. The highest NPL to advances ratio is that of the public sector bank, National Bank of Pakistan.


The MCB Bank’s recovery rate from defaulters is highest, ie, 7.36 percent as the bank has employed effective follow up recovery mechanism.

Special Asset Management Group of the MCB Bank claimed that the recovery is around 19 percent, however, with the overall recovery it falls to 7.36 percent.

The details of top 50 defaulters submitted by the State Bank of Pakistan (SBP) to the Supreme Court showed that only one appears at the list of MCB Bank and that is Tawakkal Group of Industries.

The list of 50 top defaulters whose loans were written off submitted by the central bank to the three-member bench headed by Chief Justice of Pakistan Iftikhar Muhammad Chaudhry, which took up the issue of Rs256 billion written off loans, has one common name of Tawakkal Group in the list of all the banks.

The group had made the highest bid in the first privatisation of a bank, but was not allowed by the SBP because it was a bank defaulter.

The SBP reportedly submitted two separate lists to the Supreme Court, containing particulars of those who got their loans written off. The first list contained top 50 beneficiaries, including 29 mills, companies or industries not covered by Circular 29.

The total amount of loans waived by various banks to these entities stands at Rs47.2 billion. The second list contained the names of 17 business houses whose loans were waived off under BPD-29 (Circular 29) of the SBP. The waived loans under this category stood at Rs15.6 billion.

According to the Circular 29, the banks were allowed to write off loans under two conditions, ie, revival of sick industries and recovery of bad loans due to security situation.

In the seventies, the banks were nationalised and then all through till the close of eighties the political and military governments’ influences were used for the projects, which were highly over-capitalised. This resulted in the eventual increase in defaults and subsequent writing off the loans by the banks under external pressures, the analysts added.