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KARACHI: Banks are exposed to the risk of non-recovery or late recovery of non-performing loans (NPLs) because of huge backlog of cases pending with the courts, according to a report of the State Bank of Pakistan.
The volume of the backlog of pending cases is more than the processing capacity of the courts concerned, which was evident from the fact that over 56,000 recovery suits were pending with the courts and banking tribunals during the first quarter (January to March) of the last calendar year.
These cases jointly involve more than Rs200 billion.The SBP, in its Financial Stability Review, issued recently revealed that over 14,000 of such cases are pending for more than 10 years as the relatively limited size and operational capacity of judiciary compared to the huge backlog of pending cases slows down the litigation process and it not only delays the recovery of the defaulted amount but also provides incentives to the borrowers to default on their commitments.
During the second half of CY11, banks were able to recover Rs19 billion against the non-performing loans that constitute only three percent of total non-performing portfolio of the banks, according to the report.
Banking and legal experts said that the bench at courts lacks the expertise using whicha complainant often gets the case delayed and lingered on. Mostly, those regularly missing the proceedings are the ones interested in delays, as well, they said.
A senior legal expert on the condition of anonymity said that a learned judge hearing the case was transferred by the time he completely understands the merits of the case, thus, leaving the litigants to start afresh with the new bench.
“Even the relatively qualified banking courts are such heavily overburdened that a single bench roaster shows daily 150 cases to be heard, whereas it could be anybody’s guess how many cases can be seen in detail by a single judge in eight hours duty time,” he said.
Therefore, often the bench grants ‘stay’ on numerous cases without even hearing the other side, ie, the financial institutions.
According to another expert, the banks suffer as the amount is regularly depreciating, while they are bearing the litigation charges by employing huge legal teams. The NPLs management charges are increasing on a daily basis, said expert.
A senior banker said since the boom in consumer financing in Pakistan last decade, subsequent defaults have actually increased litigations manifold, as the consumers who remained unable to pay their dues on time went to the courts.
However the cases should be bifurcated as per their profiles, either amount wise or on initial hearing it should be ascertained whether it is the question of recovery or law, he said, All sorts of cases land up in the high court not only putting a burden on the banks for legal management but also on the economy where the bench is unable to look at other civil matters because of being overburdened, he added.
Experts advised that there should be a role played by the regulator (SBP), by assisting the courts in financial banking matters with highly professional expertise.
The bifurcation of cases should be done both in terms of admissibility and amount, small amounts and weak documentation should not be given any favour in the higher courts.
They recommended that a separate ombudsman type institution should deal with such cases without delay.
The volume of the backlog of pending cases is more than the processing capacity of the courts concerned, which was evident from the fact that over 56,000 recovery suits were pending with the courts and banking tribunals during the first quarter (January to March) of the last calendar year.
These cases jointly involve more than Rs200 billion.The SBP, in its Financial Stability Review, issued recently revealed that over 14,000 of such cases are pending for more than 10 years as the relatively limited size and operational capacity of judiciary compared to the huge backlog of pending cases slows down the litigation process and it not only delays the recovery of the defaulted amount but also provides incentives to the borrowers to default on their commitments.
During the second half of CY11, banks were able to recover Rs19 billion against the non-performing loans that constitute only three percent of total non-performing portfolio of the banks, according to the report.
Banking and legal experts said that the bench at courts lacks the expertise using whicha complainant often gets the case delayed and lingered on. Mostly, those regularly missing the proceedings are the ones interested in delays, as well, they said.
A senior legal expert on the condition of anonymity said that a learned judge hearing the case was transferred by the time he completely understands the merits of the case, thus, leaving the litigants to start afresh with the new bench.
“Even the relatively qualified banking courts are such heavily overburdened that a single bench roaster shows daily 150 cases to be heard, whereas it could be anybody’s guess how many cases can be seen in detail by a single judge in eight hours duty time,” he said.
Therefore, often the bench grants ‘stay’ on numerous cases without even hearing the other side, ie, the financial institutions.
According to another expert, the banks suffer as the amount is regularly depreciating, while they are bearing the litigation charges by employing huge legal teams. The NPLs management charges are increasing on a daily basis, said expert.
A senior banker said since the boom in consumer financing in Pakistan last decade, subsequent defaults have actually increased litigations manifold, as the consumers who remained unable to pay their dues on time went to the courts.
However the cases should be bifurcated as per their profiles, either amount wise or on initial hearing it should be ascertained whether it is the question of recovery or law, he said, All sorts of cases land up in the high court not only putting a burden on the banks for legal management but also on the economy where the bench is unable to look at other civil matters because of being overburdened, he added.
Experts advised that there should be a role played by the regulator (SBP), by assisting the courts in financial banking matters with highly professional expertise.
The bifurcation of cases should be done both in terms of admissibility and amount, small amounts and weak documentation should not be given any favour in the higher courts.
They recommended that a separate ombudsman type institution should deal with such cases without delay.
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