Effect of end use of loan facility on repayments: Evidence from running finance loans portfolio of private commercial bank of Pakistan

The importance of mortgage loans and their repayments have wide range in literature. The usefulness of bank loan facilities for enhancement and growth of business is the acknowledged fact approved by the economists and business professionals. In Pakistan, State Bank of Pakistan (SBP) governs the banking sector and other financial institutions and issues certain regulations for the control and management of the loans and credit in the market. In the case of mortgage loans availed by the business community, SBP has directed the financial institutions and banks to monitor their usage by the business community for the desired purpose of loan acquisition mentioned in the loan applications. The purpose of this study is to check the repayment behavior of business individuals who have availed the mortgage loans running finance facilities to meet the financial requirements of their businesses. This study validates the rational of the SBP's regulation about the end use of loan facilities. This study argues that improper use of the loan has negative impact on the loan repayments. Business individuals who have used the loans for other than the intended purpose of its acquisition are more delinquent in repayments. Large loan size as well as the large firm size both has negative impact on repayments.