Re: Parvez Elahi for PM?
As for as loan defaulting is concerned, EVEYRONE in Pakistan knows they had loans, either you were in hibernation at that time, or you simply dont know enough, or simply chose to ignore it… read whats below, and ab bol? Crooks can never be good, atleast develop the sense to admit that.
Heavy borrowing and large write-offs
By Sultan Ahmed
PAKISTAN borrowed from external sources $15 billion during last four years and the government banks and financial agencies wrote off loans worth Rs33 billion in three years. This has happened not during the civilian rule by the politicians but under a military dominated regime.
If the bank loans had been productively and profitably utilised along with the large loans written off earlier, the need for such heavy external borrowing would have been far less instead of an average of almost four billion dollars a year for four years.
These figures were placed before the Senate by the minister of state for finance Omer Ayub who held back no punches. The massive write-off on an ascending scale began with Rs5.6 billion in 2003, and went on with Rs10.42 billion in 2004, Rs9.908 billion in 2005 and Rs19.338 billion in 2006.
The industrial sector was the major beneficiary with Rs25.82 billion. The trade sector’s write-off was Rs3.21 billion and the agricultural sector got away with Rs2.83 billion. The total number of borrowers who got such write-offs, he said, was 11, 220 in 2003, 17, 869 in 2004, 45,249 in 2005 and 19,378 in 2006. Eleven investors from the industrial sector got away with a write-off of Rs12.37 billion in 2003.
They were the beneficiaries of thousands of sick units in each province. So, in addition to the Rs33 billion loan write-off, they also got subsidies totalling Rs24 billion which makes a total of Rs7 billion.
Trading in Pakistan is said to be substantially profitable particularly in imported goods. That is why most industrial houses have opened their own trading houses for foreign goods and services. Yet they got a loan write-off of Rs.21 billion.
Big agriculturists are famous for their defaults as they follow the bigger agriculturists who have political clout and can get away with almost anything. So, it is difficult to understand why the agricultural sector loan write-off was the smallest with Rs2.83 billion. Anyway, many farm lords obtain loans with no intent to repay and eventually get it written off.
What is striking is that along with a loan default of Rs33 billion which was written off in three years, they also got subsidies of Rs24 billion to make it doubly profitable. Clearly, the outflow of public funds is a continuous process under any system of government.
Such loans were given by government banks and financial institutions often under political pressure or to reward some politicians and often written off following the same kind of political bargaining. Many of the sitting members of parliament are beneficiaries of such write-offs. They include Chaudhary Shujaat Hussain and his family members.
The loans were also given to the friends and relatives of senior officials in Islamabad who controlled the banks and later written off under their influence.
A remarkable feature of such transactions is that the bank officials who give such loans do not suffer any disgrace but the ones who write them off come under a cloud. So the officials are reluctant to both write off the loans and carry the dead load of bad loans in the books year after year. As a result of such transactions, three major banks came to grief, the first was the National Development Finance Corporation, the resources of which were misused and after it was bankrupted it was merged in to the National bank of Pakistan. The second is the Industrial Development Bank struggling under a mass of bad loans, the third was the largest private sector investment bank, Bankers Equity, which folded in a rash of scandals. At its peak, the non-performing loans were around Rs250 billion. Some part of that money has since been recovered.
Some of the borrowers had no intention to repay or planned to repay one or two instalments and then default as they were a large company.
It should also be admitted that one of the major reasons for the large defaults was the very high interest rate charged earlier during Moin Qureshi’s caretaker regime which was 23 per cent and, in fact, 25 per cent by certain banks. The borrowers, even the honest ones, were not able to pay such heavy interest and the default went on multiplying. Heavy interest rate is, often, an invitation to default.
Many industrialists do not want to invest their own money in new projects as the Central Board of Revenue may ask them where they got it from since they had declared small income earlier and no profitability on their earlier projects. They prefer to borrow money from banks and pay interest thereon while keeping their own money in banks on a long-term basis and earning large profits. This ought to be discouraged and more and more investors persuaded to invest their own money.
Some of the defaulters got their loans by bribing senior bank officials and later got off the hook by the same process.
So there has been pressure on the government to privatise banks and it has been forced to yield despite resistance by some officials. Now Habib Bank has gone to the Aga Khan Foundation, United Bank to a UAE group, MCB to Mansha group, while some Pakistanis own Allied bank. And several foreign banks have also come, such as Hongkong Shanghai Banking Corporation. Several Islamic banks have also come in and the most prominent among them is the Dubai Islamic bank.
Meanwhile, the government has borrowed $50 billion in four years – an average of almost four billion dollars a year. The country’s foreign debt which had gone down to $35.47 billion in the year 2004 has risen again to $40.172 billion which includes some foreign liabilities. In the year 2006 Pakistan borrowed $3.014 billion. This has happened in spite of the record home remittances of overseas Pakistanis of $6.5 billion and the record overseas direct investment of $6.4 billion.
In addition, Pakistan borrowed dollar 3.64 billion last year.
The heavy oil import costing over seven billion dollars and the large trade deficit have cost a current account deficit of over seven billion dollars. The World Bank and the Asian Development Bank have cautioned Pakistan that such a large current account deficit is unsustainable and the government cannot depend too much on the home remittances and the overseas and the foreign direct investment for balancing its external accounts. It has to take positive measures to bridge the gulf.
Dr Salman Shah, advisor to the prime minister on finance, says that Pakistan cannot lag behind India in its economic growth rate and has to maintain a growth rate of 7 to 9 percent but that has to be done without excessive borrowing and making the best use of Pakistan’s own resources and without excessive borrowing and loan write off.
http://www.dawn.com/2007/08/25/ed.htm
