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ALLIED BANK LIMITED
SPECIAL ASSETS MANAGEMENT


MANAGING NON PERFORMING LOANS

BY

MIRLYZA MUHAMMAD YUSUF

ON 15 JULY, 2014
CONTENTS
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1. ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
2. IMPORTANT DEFINITIONS
3. IMPORTANT PRUDENTIAL REGULATIONS
4. CATEGORIES OF LOANS
5. PROBLEM LOANS CAUSES AND IMPACT
6. CLASSIFICATION OF LOANS AND FINANCES
7. PARKING OF LOANS AND FINANCES WITH SAM
8. REMIDIAL ACTIONS
a) SETTLEMENT
b) RESCHEDULING / RESTRUCTURING
c) LITIGATION
d) WRITE-OFF
9. OTHER WORKOUT MODES
a) APPROPRIATION OF SECURITIES
b) OUTRIGHT SALE
c) ACQUISITION OF DEFAULTERS PROPERTY
d) DEBT EQUITY SWAP
e) MANAGEMENT BY OUT
f) MERGERS / ACQUISITIONS
g) OUTSOURCING OF RECOVERY
h) SPECIAL PACKAGE RELIEF
10. REFFERENCE TO NAB & EXIT CONTROLL LIST
11. RECOVERY LAWS
ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
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ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
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ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
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ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
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ORGANOGRAM OF SPECIAL ASSETS MANAGEMENT
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IMPORTANT DEFINITIONS
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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
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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)
CATEGORIES OF LOANS
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PERFORMING LOANS
REGULAR LOANS
LOANS ON WATCH LIST (OVERDUE)


NON PERFORMING LOANS
CLASSIFIED LOANS
PROBLEM LOANS CAUSES AND IMPACT
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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
CLASSIFICATION OF LOANS AND FINANCES
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CLASSIFICATION DETERMINANT TREATMENT OF INCOME
PROVISIONS
TO BE MADE
SUB-STANDARD
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%
LOSS
(a) Mark-up or
principal is overdue
by 360 days or more
from the due date
As above 100%
(b) Where Trade Bills
(Import / Export or
Inland Bills) are not
paid / adjusted
within 180 days of
the due date
As above 100%
PARKING OF LOANS AND FINANCES WITH SAM
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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.
i. PARKING OF LOSS / DOUBTFUL ACCOUNTS OF Rs. 50 (M) AND ABOVE BY RMC
ii. PARKING OF LOSS / DOUBTFUL ACCOUNTS OF LESS THAN Rs. 50 (M) BY CHIEF
SAM
iii. SUBSTANDARD CLASSIFIED ACCOUNTS CAN BE TRANSFERRED TO SAM AT ANY
TIME WITH THE PRIOR PERMISSION OF CEO.
APPROVAL MATRIX FOR TRANSFER / PARKING OF NPL ACCOUNTS WITH SAM
REMIDIAL ACTIONS
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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.
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.
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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. TIME LIMITATION AS PER LIMITATION ACT
ii. CLAIMS VERSES COST OF LITIGATION
iii. DEFECTIVE DOCUMENTATION
iv. ANY SPECIFIC INSTRUCTIONS BY REGULATORY AUTHORITY

SELECTION OF LAWYER
CHANGE / REPLACEMENT OF LAWYER
FOLLOW-UP OF LITIGATION
i. PERFORMANCE REVIEW OF LAWYER
ii. CONTINUOUS REPORTING TO THE BANK
iii. AVOID ADJOURNMENT
iv. SUITS PENDING FOR MORE THAN TWO YEAR
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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. DEFECTIVE DOCUMENTATION
ii. DEATH OF SPONSORS & GUARANTORS
iii. UNTRACEABLE ASSETS
iv. AMOUNT OF DECREE IS LESS THAN AMOUNT OF OUTSTANDING
v. SUBSTANTIAL DECREASE IN VALUE OF SECURITY
vi. NO CHANCES OF RECOVERY OF OUTSTANDING AMOUNT
vii. MANDATORY SCHEME INTRODUCED BY SBP
viii. HUMANITARIAN GROUNDS
ix. APPROVAL MATRIX
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REMIDIAL ACTIONS
APPROPRIATION OF SECURITIES
OUTRIGHT SALE
ACQUISITION OF DEFAULTERS PROPERTY
DEBT EQUITY SWAP
MANAGEMENT BY OUT
MERGERS / ACQUISITIONS
OUTSOURCING OF RECOVERY
SPECIAL PACKAGE RELIEF
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OTHER WORKS OUT MODES
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.
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NATIONAL ACCOUNTABILITY BUREAU
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.
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PLACEMENT OF NAMES OF DEFAULTERS ON EXIT CONTROL LIST
TARGET WISE RECOVERY POSITION FOR THE 1
st
JAN 30
th
SEP, 2013 (GROUP WISE)
Name
of
Group
Classified
Advances
As On
31-12-2012
Cash Recovery Regularization
M/up &
Other
Charges
Recovery
Recovery
In Already
Written-
off A/Cs.
Total
Cash
Recovery
Write-
Off
Target
During
1
st
Jan-30
th

Sep, 2013
Achieved
During The
Period
Target
During
1
st
Jan-30
th

Sep, 2013
Achieved
During The
Period
Amount Amount % Amount Amount % Amount Amount Amount Amount
SAM 8,798.086 530.000 553.991 105 - - - 18.181 44.518 616.690 67.650
CIBG 9,032.107 1,068.000 1,034.438 97 600.000 50.000 8 44.265 - 1,078.703 14.233
CRBG 2,837.368 87.858 245.525 279 87.858 227.225 259 50.109 - 295.634 -
TOTAL 20,667.561 1,685.858 1,833.954 109 687.858 277.225 40 112.555 44.518 1,991.027 81.883
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Amount In Millions
0
50
100
150
200
250
300
350
400
450
500
CASH RECOVERY
IN PRINCIPAL
CASH RECOVERY
IN M.UP & OTHERS
CASH RECOVERY
IN W.OFF A/Cs.
REGULARIZATION
WRITE-OFF
SAM
CIBG
CRBG
PEER BANK ANALYSIS AS ON 30-09-2013
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Amount In Millions
261,822
160,945
251,406
245,257
494,455
415,919
724,569
160,027
162,990
98,145
19,692
3,878
21,296
24,936
50,644
52,438
95,569
25,146
32,830
31,462
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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
GROSS ADVANCES NPLs
Sr.
No.
BANK
GROSS
ADVANCES
NPLs
NPL %
30-09-2013
NPL %
31-12-2012
1 Allied Bank Limited 261,821.558 19,692.318 7.52% 7.15%
2 Bank Al-Habib 160,944.941 3,877.862 2.41% 2.41%
3 Bank Al-Falah 251,405.835 21,296.148 8.47% 8.93%
4 MCB Bank Limited 245,257.287 24,936.093 10.17% 9.74%
5 Habib Bank Limited 494,454.766 50,643.930 10.24% 10.10%
6 United Bank Limited 415,919.050 52,438.169 12.61% 13.57%
7 National Bank of Pakistan 724,569.281 95,568.533 13.19% 12.14%
8 Standard Chartered Bank 160,027.124 25,145.672 15.71% 16.99%
9 Askari Bank Limited 162,989.540 32,830.348 20.14% 16.28%
10 NIB Bank Limited 98,145.186 31,461.966 32.06% 34.71%
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