20000116

NBP likely to declare

record Rs 6 bn

gross profits

RECORDER REPORT

KARACHI: The country's premier financial institution, National Bank of Pakistan, is expected to declare a record gross profit in the range of Rs 6 billion, which is the highest-ever by a corporate entity in the country, as the bank's deposits soared to Rs 295 billion by end-December 1999.

Upon assumption of office in February 1997, NBP President Mohammadmian Soomro had inherited a bank that had suffered a loss of Rs. 1.2 billion in 1996. Within a year there was a major turnaround and NBP's pre-tax profit was Rs 0.995 billion in 1997. This profit was doubled to Rs 2.1 billion in 1998. And, the final pre-tax profit for 1999 is expected to be Rs 3.5 billion after amortising the cost of voluntary retirement scheme of Rs 2.5 billion. This Rs 2.5 billion will be a direct contribution towards pre-tax profit and will make a very substantial positive impact in the year 2002 and thereafter. Additionally, the important universal ratios and measures of performance will improve significantly.

With a paid-up capital of Rs 1.4 billion and reserves of Rs 13.5 billion, NBP enjoys a Rs 15 billion base. The significant growth in profitability under Soomro has been achieved entirely through bank's own resources and without any injection of new equity or any other meaningful financial support by the government.

NBP has already achieved a capital adequacy ratio of 11.3 percent without any injection of capital by the government. This is substantially better than the Basle requirement of 8 percent.

NBP's bad debt portfolio was 30 percent of its advance (Rs 27 billion) in 1996. It is currently resting at 17 percent (Rs 18 billion) and is fully provided for. This is inclusive of the forced amalgamation of Mehran Bank in NBP by the government.

Portfolio deterioration has been contained through enhanced vigilance and the accretion level has been brought down by 50 percent.

A special incentive scheme for small defaulters of upto Rs 0.5 million was successfully launched and out of the stuck up amount, Rs 300 million cash recovery made involving some 13,000 small accounts.

NBP's cash recovery as a percentage of total classified portfolio, is said to be the highest among NCB's.

Advances: Advances of the bank are also showing a sustained growth. As of December 31, 1999, the total advances were Rs 145 billion as compared to last year's figure of Rs 137 billion.

Whilst net growth in loans and advances is around Rs 8 billion, the real growth after adjustment of recoveries and repayments is over Rs 15.0 billion, i.e. around 20 percent, which in times of lower credit demand is above average.

The bank has rationalised its portfolio and the exposure to any single sector is not more than 20 percent. Further rationalisation of portfolio continues with increased emphasis on consumer, small/medium customers and project financing.

The bank has extended project loans of Rs 3.0 billion during this year. And is taking specialist staff have necessary experience and skills to critically examine specialised/project financing proposals.

Mark-up rates on loans and advances stand reduced by over six percent since 1997. To give incentives to borrowers, higher reduction was linked to routing of additional export business and other ancillary business.

As part of rationalisation of the credit portfolio to diversify and provide broad based financing to small and medium sector, new ways are and methods were explored to capture this market and it requires detailed information on such businesses through organised data base source. Therefore, arrangements were finalised in this connection with an international data base firm, Dun and Brad Street.

Overseas Operations: NBP is the only Pakistani bank with branches in Japan and South Korea. Foreseeing the approaching severe crisis, the loan portfolios were so managed to avoid any losses, though the deposits and earnings were reduced in those two markets.

NBP also took initiative to support the balance of payment position and substantial foreign currency loans were provided at different periods, out of which USD 165 million was arranged for the Ministry of Petroleum. NBP therefore was the only NCB to raise such needed FX loans in recent times.