Do lenders get the short end of the stick in Pakistan?

In Pakistan, banks can lend money in minutes and spend years trying to recover it. Is it any wonder then that the banks are averse to lending to the private sector in the first place? 

Focusing on government lending is far easier and usually not as much of a cause for a headache. The problem is not always that borrowers default. Default is part of banking; it is priced, provisioned and modelled. The bigger concern is what happens after the default, when a loan secured by property, machinery, inventory or receivables begins its slow migration from a bank’s balance sheet into the country’s legal system.

At that point, what looked like collateral can start to behave like an argument. A mortgage becomes a dispute over title, valuation, service of notice or possession. A pledged asset may no longer be where it was supposed to be. A hypothecated stock of goods can thin out, move or disappear. A decree, even when obtained, may not translate quickly into cash. For a banker, recovery is not merely about winning a case. It is about converting a legal right into money before time, litigation and uncertainty eat away at its value.

And this is not necessarily because banking laws in Pakistan are weak. On paper, Pakistan has built a recovery framework that should reassure lenders. Banking courts exist for this purpose. Financial institutions have statutory remedies. The law gives banks the ability, in certain cases, to proceed against mortgaged property without waiting for the full ritual of ordinary civil litigation. The architecture is meant to be swift, specialised and commercially sensible.

In practice, recovery often becomes a test of endurance. Stays, objections, adjournments, appeals, possession disputes and weak execution can stretch the process far beyond what any credit officer would have assumed when the loan was approved. By the time an asset is actually sold, its market value may have fallen, the buyer pool may have shrunk, and the bank may have recovered far less than the security once promised.