Banks Demand 16.6% Interest for Deffering PKR 281 Billion PIA loans for 5 Years

[Abbas Ali]

Commercial banks have demanded a fixed annual interest rate of 16.6% for deferring recoveries of their PKR 281 billion loans to Pakistan International Airlines (PIA) for 5 years, a demand Finance Minister Dr Shamshad Akhtar has refused to accept.

Akhtar has made a counterproposal to give around 10% interest on the PKR 281 billion loans, based on the banks’ actual cost of borrowing.

Discussions seem to have reached a deadlock, which has halted progress on the PIA privatization.

On Wednesday, the finance minister also said that it has been decided to transfer the entire PIA debt of PKR 825 billion into a holding company. “I do not know what to do with this debt,” remarked the finance minister while speaking at a seminar on the economic issues of the country.

As of the end of last month, PIA owed PKR 281 billion to the commercial banks and is paying around a 23.5% interest rate on these loans.

The sources said that the commercial banks have demanded that the government should give them a 16.6% fixed interest cost in return for extending the repayments for five years. The fixed cost is being worked on the basis of five-year Pakistan Investment Bond prevailing rates plus a 2.5% charge.

However, in response to the banks’ demand, the finance minister has offered to pay interest equal to the cost of the funds of the banks plus 2.5%, which translates into 10.2%, said the sources. The finance ministry has also floated an option that the banks might be offered a floating interest rate linked to the remaining maturity days and be paid annually.

At a 16.6% cost, the banks would earn roughly PKR 233 billion interest over a period of five years, without the compounding of the interest. The finance minister’s offer would give them roughly PKR 143 billion less – and would save about PKR 90 billion.

https://tribune.com.pk/story/2454083/ba ... n-pia-loan