SBP to acquire shares of ZTBL/HBFC in exchange for debt settlement

ZTBL and HBFC owe Rs94.616 and Rs16.364b to SBP respectively

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ISLAMABAD: State Bank of Pakistan (SBP) has been given go-ahead by the government to purchase shares of Zarai Taraqiati Bank Limited (ZTBL) and House Building Finance Corporation (HBFC) in exchange for settling their debts.

This was decided in a federal cabinet meeting chaired by Prime Minister Shahid Khaqan Abbasi which discussed about the financial health of HBFC and ZTBL, reported a local newspaper.

An official said SBP was charging a mark-up of 7.5pc on Rs54b borrowed by ZTBL and the average loan size it was providing to farmers stood at Rs215,000. He added that the reason for high-markup ratio in agriculture was primarily because of this.

To resolve this issue, Finance Ministry is said to have arranged a round of meetings of HBFC/ZTBL with SBP. ZTBL’s loan procured from SBP including principal and markup by end of December 2015, stood at Rs94.616b, out of which Rs40.156b was interest.

HBFC owed Rs16.364b loan which includes principal and mark-up amount to SBP by end of December 2016. Sources said heavy indebtedness was marring the performance of both these Development Financial Institutions (DFIs).

After a round of discussions between SBP, HBFC and ZTBL officials held at Finance Division, it was decided SBP’s outstanding principal debt of Rs54.460b owed by ZTBL will be converted to redeemable preference shares and pay back a profit of 7.5pc a year.

This proposal was given approval by ZTBL board and Economic Coordination Committee (ECC) for the issuance of Guarantee in last week of December 2016. SBP also asked Finance Division to give out directives to it for conversion of ZTBL shares as per decided mechanism.

HBFC outstanding principal amount of Rs11.242b alongside its Rs5.122b mark-up owed to SBP will also be converted into ordinary shares and HBFC board has given go-ahead to this transaction.

To convert these loans into equity in both cases, SBP needed the federal governments direction under sub-section (6A) of Section 17 of SBP Act 1956 for converting its debt and acquire shares of ZTBL and HBFC.