1

ALLIED BANK LIMITED

SPECIAL ASSETS MANAGEMENT

MANAGING NON PERFORMING
LOANS

BY

MIRZA MUHAMMAD YUSUF

ON

03 MARCH 2015

CONTENTS
1.
2.
3.
4.
5.
6.
7.

ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT

IMPORTANT PRUDENTIAL REGULATIONS
CATEGORIES OF LOANS
PROBLEM LOANS CAUSES AND IMPACT
CLASSIFICATION OF LOANS AND FINANCES
PARKING OF LOANS AND FINANCES WITH SAM
REMIDIAL ACTIONS
a)
b)
c)
d)

8.

SETTLEMENT
RESCHEDULING / RESTRUCTURING
LITIGATION
WRITE-OFF

OTHER WORKOUT MODES

a)
b)
c)
d)
e)
f)
g)
h)

APPROPRIATION OF SECURITIES
OUTRIGHT SALE
ACQUISITION OF DEFAULTERS PROPERTY
DEBT EQUITY SWAP
MANAGEMENT BY OUT
MERGERS / ACQUISITIONS
OUTSOURCING OF RECOVERY
SPECIAL PACKAGE RELIEF

9. REFFERENCE TO NAB & EXIT CONTROLL LIST

10. RECOVERY LAWS

ORGANOGRAM OF SPECIAL ASSETS

MANAGEMENT

Page 1

ORGANOGRAM OF SPECIAL ASSETS

MANAGEMENT

Page 2

ORGANOGRAM OF SPECIAL ASSETS

MANAGEMENT

Page 3

ORGANOGRAM OF SPECIAL ASSETS

MANAGEMENT

Page 4

ORGANOGRAM OF SPECIAL ASSETS

MANAGEMENT

Page 5

IMPORTANT DEFINITIONS

BANK

BORROWER OR OBLIGOR

DOCUMENTS, PERSON AND RELATED

PARTY

EQUITY OF THE BANK AND

EXPOSURE/LARGE EXPOSURE

EQUITY OF THE BORROWER

FORCE SALE VALUE (FSV)

LIQUID ASSETS

READILY REALIZABLE ASSETS

SECURED

SUBORDINATED LOAN

MEDIUM AND LONG TERM FACILITIES

TANGIBLE SECURITY

PRUDENTIAL REGULATIONS

RISK MANAGEMENT REGULATIONS (R)

CORPORATE GOVERNANCE (G)

KYC AND ANTI MONEY LAUNDERING (M)

OPERATIONS (O)

IMPORTANT RISK MANAGEMENT REGULATIONS

EXPOSURE LIMITS (R1),

SINGLE OBLIGOR/GROUP LIMIT AND RELATED PARTY
EXPOSURE LIMIT. AND LARGRE EXPOSURE LIMITS.

FINANCIAL ANALYSIS AND OTHER CONDITIONS (R3)

CLASSIFICATION AND PROVISIONING FOR ASSETS (R8)

10

CATEGORIES OF LOANS

PERFORMING LOANS

REGULAR LOANS

LOANS ON WATCH LIST (OVERDUE)

NON PERFORMING LOANS

CLASSIFIED LOANS

11

PROBLEM LOANS CAUSES AND IMPACT

PROBLEMS

OVERDUES

INCOMPLETE DOCUMENTATION

WEAK SECURITY

FREQUENT CHANGES IN GOVERNMENT POLICIES

WILLFUL DEFAULT

CAUSES AND IMPACT

FAULTY FEASIBILITIES

EXAGGERATED FINANCIAL STATEMENTS

LACK OF EXPERIENCE

LACK OF PROPER SUPERVISSION OF PRIMARY SECURITY

OVER ASSESST COLLATERAL SECURITIES

UN-ECONOMICAL UNIT

12

CLASSIFICATION OF LOANS AND FINANCES

TREATMENT OF INCOME

PROVISIO
NS TO BE
MADE

SUBSTANDARD

Mark-up or
principal is
overdue by 90
days or more
from the due
date

Unrealized mark-up to be kept in

memorandum account and not
credited to income account
except when realized in cash.
Unrealized mark-up already
taken to income account to be
reversed and kept in
memorandum account.

25%

DOUBTFUL

Mark-up or
principal is
overdue by 180
days or more
from the due
date

As above

50%

(a) Mark-up or
principal is
overdue by 360
days or more
from the due
date

As above

100%

CLASSIFICATI
ON

LOSS

DETERMINANT

(b) Where Trade

13

PARKING OF LOANS AND FINANCES WITH SAM

MONITORING OF CLASSIFIED OBLIGORS WITH OUTSTANDING EXPOSURE OF

Rs. 50 MILLION AND ABOVE THROUGH RISK MANAGEMENT COMMITTEE
(RMC) AND DETERMINATION TO RETAIN THE RELATIONSHIP WITH BUSINESS
GROUPS OR PARK THE ACCOUNT WITH SAM.
THE MAXIMUM PERIOD TO RETAIN CLASSIFIED ACCOUNTS BY BUSINESS
GROUPS UNDER LOSS CATEGORY IS ONE YEAR.
IF THE RMC COMMITTEE IS OF THE OPINION THE DEFAULT IS WILLFUL THE
ACCOUNT SHOULD BE IMEDIATELY PARKED WITH SAM BRANCH. IF THE
DEFAULT IS CIRCUMSTANTIAL THE NPL ACCOUNT SHOULD BE TRANFERRED
TO SAM BRANCH AS PER APPROVAL MATRIX GIVEN HERE.

APPROVAL MATRIX FOR TRANSFER / PARKING OF NPL ACCOUNTS

WITH SAM
i.
ii.
iii.

PARKING OF LOSS / DOUBTFUL ACCOUNTS OF Rs. 50 (M) AND ABOVE BY

RMC
PARKING OF LOSS / DOUBTFUL ACCOUNTS OF LESS THAN Rs. 50 (M) BY
CHIEF SAM
SUBSTANDARD CLASSIFIED ACCOUNTS CAN BE TRANSFERRED TO SAM
AT ANY TIME WITH THE PRIOR PERMISSION OF CEO.

14

15

REMIDIAL ACTIONS

NEGOTIATED SETTLEMENTS

PRINCIPAL + MARKUP + COF + CHARGES

PRINCIPAL + MARKUP + CHARGES
PRINCIPAL ONLY
LESS THAN PRINCIPAL

RESCHEDULING / RESTRUCTURING

A RESCHEDULED LOAN IS ONE IN WHICH THE RATE OF MARKUP AND

OTHER ORIGINAL TERMS REMAIN UNCHANGED BUT REPAYMENT OF THE
PRINCIPAL IS EXTENDED BECAUSE OF PROJECT DELAYS OR ANY OTHER
SIMILAR REASON. INTEREST / MARK-UP IN RESCHEDULING CASES
CONTINUES TO BE SERVICED ON DUE DATES.
A RESTRUCTURED LOAN IS ONE WHOSE TERMS AND CONDITIONS OF
LOAN HAVE BEEN MODIFIED, PRINCIPALLY BECAUSE OF DETERIORATION
ON THE OBLIGORS FINANCIAL CONDITION, TO PROVIDE FOR A
REDUCTION IN THE RATE OF MARKUP OR PRINCIPAL OR CAPITALIZATION
OF INTEREST / MARK-UP.

16

REMIDIAL ACTIONS

CONSIDERATIONS FOR RESCHEDULING /

RESTRUCTURING

IMPROVEMENT IN BANKS RISK.

NO CHANGE IN CLASSIFICATION STATUS OF THE
ACCOUNT UNLESS TERMS OF RESCHEDULING /
RESTRUCTURING ARE FULLY MET FOR A PERIOD OF ONE
YEAR.
NO CAPITALIZATION OF MARKUP.
REPAYMENT SCHEDULE SHOULD BE BASED CASH
GENERATION CAPACITY OF THE UNIT AND SPONSORS
ABILITY TO INJECT FUNDS.
LEGAL DOCUMENTATION BEFORE ISSUANCE OF DAC.
PERSONAL GUARANTEES OF DIRECTORS (OUTGOING &
INCOMING).
CONSENT DECREE.
ADHERENCE TO SBP REGULATIONS & DIRECTIVES.
APPROVING AUTHORITIES.

17

REMIDIAL ACTIONS

LITIGATIONS

FAILURE OF ALL THE PERSUASIVE EFFORTS FOR RECOVERY /

SETTLEMENT OF ANY NPL ACCOUNT OR ANY CRIMINAL ACT OF
OBLIGOR WITH REGARD TO LOAN / FINANCE ACCOUNT LEAVES NO
OPTION WITH THE BANK, BUT TO ADOPT LITIGATION (BOTH CIVIL OR
CRIMINAL) FOR RECOVERY OF BANKS DUES. LITIGATION SHOULD BE
INITIATED IN ALL THE NPL ACCOUNTS WITHIN ONE YEAR OF PARKING
WITH SAMG.

EXCEPTIONS
i.
ii.
iii.
iv.

.
.
.

TIME LIMITATION AS PER LIMITATION ACT

CLAIMS VERSES COST OF LITIGATION
DEFECTIVE DOCUMENTATION
ANY SPECIFIC INSTRUCTIONS BY REGULATORY AUTHORITY

SELECTION OF LAWYER
CHANGE / REPLACEMENT OF LAWYER
FOLLOW-UP OF LITIGATION
i.
ii.
iii.
iv.

PERFORMANCE REVIEW OF LAWYER

CONTINUOUS REPORTING TO THE BANK
AVOID ADJOURNMENT
SUITS PENDING FOR MORE THAN TWO YEAR

18

REMIDIAL ACTIONS

WRITE-OFF / WAIVER

WRITE-OFF REFERS TO ANY FINANCIAL RELIEF IN RESPECT OF PRINCIPAL,

MARKUP DEBITED & CREDITED TO INCOME ACCOUNT.
REVERSAL / WRITE BACK REFERS TO ANY FINANCIAL RELIEF IN RESPECT
OF MARKUP DEBITED AND NOT CREDITED TO INCOME ACCOUNT.
WAIVER REFERS ANY FINANCIAL RELIEF IN RESPECT OF MARKUP AND
COST OF FUNDS NOT YET DEBITED TO OBLIGORS ACCOUNT.
WRITE-OFF PROPOSAL SHOULD BE DULLY AUDITED BY THE INTERNAL
AUDITOR AND APPROVED BY THE REGIONAL AUDIT CHIEF.
LATEST VALUATION OF ASSETS HELD AS SECURITY.
LATEST VALUATION OF PROPERTIES / STOCK / OTHER ASSETS HELD BY THE
BANK.
CONSIDERATIONS FOR WRITE-OFF
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.

DEFECTIVE DOCUMENTATION
DEATH OF SPONSORS & GUARANTORS
UNTRACEABLE ASSETS
AMOUNT OF DECREE IS LESS THAN AMOUNT OF OUTSTANDING
SUBSTANTIAL DECREASE IN VALUE OF SECURITY
NO CHANCES OF RECOVERY OF OUTSTANDING AMOUNT
MANDATORY SCHEME INTRODUCED BY SBP
HUMANITARIAN GROUNDS
APPROVAL MATRIX

19

OTHER WORKS OUT MODES

APPROPRIATION OF SECURITIES
OUTRIGHT SALE
ACQUISITION OF DEFAULTERS PROPERTY
DEBT EQUITY SWAP
MANAGEMENT BY OUT
MERGERS / ACQUISITIONS
OUTSOURCING OF RECOVERY
SPECIAL PACKAGE RELIEF

20

NATIONAL ACCOUNTABILITY BUREAU

REFERENCE TO NAB UNDER SECTION 31-D

SECTION 31-D OF NAB ORDINANCE 1999 SPEAKS ABOUT INQUIRY,

INVESTIGATION OF PROCEEDINGS IN RESPECT OF IMPRUDENT LOAN /
FINANCE, DEFAULT LOAN / FINANCE OR RESCHEDULED LOAN / FINANCE
SHALL BE INITIATED OR CONDUCTED BY THE NAB AGAINST ANY
PERSON, COMPANY OR FINANCIAL INSTITUTION FOR WHICH
REFERENCE IS TO BE ROUTED THROUGH GOVERNOR, SBP.

DIRECT COMPLAINT TO NAB FOR CRIMINAL ACTIONS

UNDER SECTION-9 OF THE NAB ORDINANCE 1999 AND SECTIONS 409,

420, 468 & 168 OF PAKISTAN PENAL CODE BY SIMPLY LODGING A
COMPLAINT IN WRITING TO THE CONCERNED OFFICE OF REGIONAL
DIRECTORATE OF NAB, IN RESPECT OF BORROWERS INVOLVED IN
SIPHONING OF FUNDS, UNDER / OVER INVOICING, FAKE DOCUMENTS,
UNAUTHORIZED REMOVAL OF MACHINERY AND PLEDGED STOCKS.

PLACEMENT OF NAMES OF DEFAULTERS ON EXIT

CONTROL LIST

EXIT CONTROL LIST

IN ALL THE CASES OF WILLFUL DEFAULT OF RS.100 (M) & ABOVE, AND /
OR ANY CRIMINALITY HAVING BEEN DETECTED AGAINST BORROWERS /
STAFF & OTHERS, THE FIELD OFFICES / SAM BRANCHES MAY FORWARD
THEIR REQUEST TO GH / GC FOR PLACING THEIR NAMES OF EXIT
CONTROL LIST (ECL) THROUGH SBP, WITH THE APPROVAL OF CEO.

21

22
TARGET WISE RECOVERY POSITION FOR THE 1st JAN 30th SEP,
2013 (GROUP WISE)
Amount In
Millions

Cash Recovery

Regularization

M/up
Recove
&
ry In
Total
Target
Target
Achieved Other
During Achieved During
Already Cash WriteDuring Charg
st
st
Classifie 1 Jan- During The 1 JanWritten Recove Off
The
es
th
th
-off
ry
d
30 Sep, Period 30 Sep,
Period Recov
Name Advance 2013
2013
A/Cs.
ery
of
s
Group As On
31-122012
Amoun
Amou
Amoun Amoun Amoun Amou
Amount
% Amount
%
t
nt
t
t
t
nt

8,798.08
530.000553.991105
- 18.181 44.518
6
9,032.10 1,068.00 1,034.4
CIBG
97 600.00050.000 8 44.265
7
0
38
2,837.36
227.22 25
CRBG
87.858245.525279
87.858
50.109
8
5 9
TOTA 20,667. 1,685.851,833.9 10
277.2
112.55
687.858
40
44.518
L
561
8
54 9
25
5
SAM

616.69
SAM
67.650
0
CIBG
1,078.7
CRBG
14.233
03
295.63
4
1,991. 81.88
027
3

23

PEER BANK ANALYSIS AS ON 30-09-2013

Sr.
No.
1
2
3
4
5
6
7
8
9
10

GROSS
ADVANCES
261,821.558
160,944.941
251,405.835
245,257.287
494,454.766
415,919.050
724,569.281
160,027.124
162,989.540
98,145.186

BANK
Allied Bank Limited
Bank Al-Habib
Bank Al-Falah
MCB Bank Limited
Habib Bank Limited
United Bank Limited
National Bank of Pakistan
Standard Chartered Bank
Askari Bank Limited
NIB Bank Limited

19,692.318
3,877.862
21,296.148
24,936.093
50,643.930
52,438.169
95,568.533
25,145.672
32,830.348
31,461.966

NPL %
NPL %
30-09-2013 31-12-2012
7.52%
7.15%
2.41%
2.41%
8.47%
8.93%
10.17%
9.74%
10.24%
10.10%
12.61%
13.57%
13.19%
12.14%
15.71%
16.99%
20.14%
16.28%
32.06%
34.71%

261,822
160,945

Allied Bank Limited

Bank Al-Habib
Bank Al-Falah

19,692
3,878

251,406

MCB Bank Limited

Habib Bank Limited
United Bank Limited
National Bank of Pakistan
Standard Chartered Bank

21,296

245,257

24,936

494,455

50,644

415,919

52,438

724,569

95,569

160,027

25,146

162,990
98,145

Askari Bank Limited

NIB Bank Limited
0%

NPLs

10%

20%

30%

Amount In
Millions

40%

50%

32,830
31,462
60%

70%

80%

90%

100%

24