The State Bank of Pakistan has released a set of guidelines to regulate the process of transferring and assigning non-performing assets (NPAs) from financial institutions like banks and development finance institutions to corporate restructuring companies (CRCs).

The financial institutions are required to ensure that the transfer and assignment of NPAs to CRCs is conducted in a fair, transparent, and prudent manner, on an arm’s length basis, and in compliance with relevant laws, regulations, and the FIs’ internal policies.

The financial institutions will record the financial instruments received from the CRCs as consideration for the transfer and assignment of NPAs at the fair value, as mutually agreed upon between the parties. For the first three years, the financial institutions may continue to report these financial instruments at the initial agreed fair value.

After the initial three-year period, the financial instruments will be re-measured/revalued as per the relevant International Financial Reporting Standards (IFRS). Any gains or losses arising from such remeasurement/revaluation will be recorded in Other Comprehensive Income (OCI), with gains not being available for dividends until full or partial redemption.

Upon the transfer of NPAs to CRCs, the FIs may reverse up to 10% of the provision against the value of the financial instrument received from CRCs into their Profit and Loss (P&L) statement. However, this reversal will not be available for cash and stock dividends.

The remaining 90% of the provision against the value of financial instruments received from CRCs will be maintained. This amount will be recorded in the P&L statement of the year in which the actual amount, in the form of upfront full/partial cash consideration, is received from the CRCs or to the extent the financial instrument received as consideration is fully/partially redeemed.

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The financial institutions will be required to provide proper disclosures on the deferred losses in the notes to their periodic financial statements.

Each financial institution should develop its internal policy for the transfer and assignment of NPAs to the CRCs or the appointment of CRCs as agents for the recovery of NPAs.