Timely actions restore customers' confidence in BoP

[Lahore_Real_Estate]

LAHORE (December 04, 2010) : The Bank of Punjab which was near collapse in 2008 has re-emerged with force to compete with other leading commercial banks because prudent and timely actions have restored the customers' confidence in the bank, said BoP President Naeemuddin Khan.

"In the last two years, the bank has registered a phenomenal growth in its deposits. Over 300,000 current and saving accounts were opened, which reflects the trust of its clients in the bank. This has been made possible due to new management's determination to ensure good corporate governance, no political interference, high professional management, restructuring, improved service standards and zero tolerance against corruption," he expressed these views while talking to Business Recorder here on Friday.

He said, the success story of the bank could be gauged from the fact that for the first time in its history, it has crossed the figure of Rs 200 billion deposits this year and it is very much on the way of a turn around from its nearly collapsed status of year 2008. The 2008 crisis was triggered by imprudent loaning, weak internal audit, improper deployment of funds and absence of risk management system.

He disclosed that the previous administration imprudently extended loans of billions of rupees. He said it took the new administration almost one year to determine the actual impact of imprudent policies of the previous regime on the financial health of the bank. "One of the glaring examples of such imprudent loaning was extending loans to the bank's directors. After the take-over in 2008, we immediately stopped this practice through an act of the provincial Assembly and thus barring the directors from attaining a loan from the Bank of Punjab in future," he added.

Naeem claimed that the new administration, after taking over the bank's affairs, carried out aggressive restructuring with the aim of removing all the loopholes that gave way to ill banking practices in the past and reverse the bank's negative image born out of the 2008 crisis and restored the customer's confidence in the bank.

"Hence, as part of the restructuring programme, we introduced merit based policies, refurbishing of the branches on modern lines and even relocating some of them with improved services standard," he added.

"The restructuring gave positive results; depositors, who were withdrawing their amounts massively in 2008 due to 'Haris Steel' scam, are returning to the bank and during last two years registered over 30 percent increase in current account and saving accounts (CASA) with new depositors coming to the bank," he averred.

He said they were now working on reducing the cost of funds, which was at 11 percent during the year 2008 and now it has come down to 8 percent. The bank is aiming to bring it down further to 6.5 percent. The previous administration was relying on public sector funds while the new administration is taking steps to attract customers from private sector.

Regarding changes in the management, he said right from the president to divisional heads and second tier officials, all are recruited on merit. "Corrupts have no place in this bank and the administration has introduced zero tolerance policy against them. Every employee is accountable and the bank is toeing policies based on merit and good corporate governance to become a very robust institution with potential of being a very strong bank in the region," he added.

Talking about the 2008 crisis, he claimed that it was created by imprudent loaning, extending loans against weak securities, poor governance, lack of internal control and auditing, political interference, and poor quality of staff. He disclosed that the new management inherited Rs 50 billion worth of bad loans. "In fact, risk management system did not exist in the bank," he added.

He said to ensure prudent lending, an independent committee was constituted to carry out risk analysis of any loan request, which after proper analysis recommends approval or disapproval of loan requests. Also, internal audit system had been strengthened and is answerable to the Board of Directors (BoD) and not one person.

When asked about the recovery of bad debts, he said out of the Rs 50 billion bad loan, Rs 39 billion has been restructured. He also said recovery of Rs over 10 billion had also been achieved. In the Haris Steel case, the bank has recovered a significant amount of money and also their properties in Malaysia and UAE were also attached. He was confident that by June 2011, they will recover every single penny from the Haris Steel and the bank is grateful to the Supreme Court for its timely action in this regard.

Talking about restructuring of loans, he said the bank had restructured loans of billions of rupees and most them are now performing, and he was hopeful that those who are not performing will soon start paying back. "Right now we are giving them a breather and this is the time where State Bank of Pakistan (SBP) should act and ease the prudential regulation for the banks and those who are not performing due to recession," he added.

"At present Non Performing Loans (NPLs) stand at Rs 550 billion collectively of all the banks and thus prudential regulations should be eased to make these NPLs start performing till the economic comes back on the track," he proposed.

When asked about court cases against defaulters, he said the bank is very much pursuing with the cases against the defaulters; in 2008 they filed 350 such cases and the number has increased to 1400.

Regarding the bank's products, he said the bank is focused on investing in the agriculture sector, which is the backbone of the province and needs improvement. He said the bank has sanctioned Rs 8 billion worth of loans in this vital sector. He also said the bank constituted a consortium of Rs 50 billion last year to help the Punjab government in its wheat procurement operation, and BoP alone contributed Rs 20 billion in this consortium. "Other commercial banks also joined the consortium, which reflects the trust of the banking sector in strength of the BoP. The bank had also extended loans of Rs 8 billion during the last year and would continue to support the government and farmers," he added.

He said this year the bank was extending loans for seed and fertilisers to farmers under a very strong transparent system with proper monitoring; farmers repay the loan after the sale their crops. He said qualified and experienced staff was working in agro loan and they follow strict criteria. "Loans are given without any political interference. In future more banking products would be launched," he added.

He said that the bank's biggest achievement in two years is home remittance where it registered a phenomenal growth. In year 2008, the bank received home remittance worth Rs 5.8 billion while in calendar year 2009 and 2010, it received Rs 74 billion.

On Statutory Liquidity Requirement (SLR), he said when the new management took over the bank, its SLR was short by Rs 23 billion, which was recovered by the end of 2008 after some hectic efforts. He stated that the bank is maintaining the required Advance Deposit Ratio (ADR) of 100-70; the bank's deposits stands at Rs 192 billion whereas it advances are Rs 152 billion.

When asked about the expansion of the bank's branches, he said at present there are 273 branches in the country and they have sought permission from the central bank to further add 30-40 branches in 2011. He also said 200 of their braches are online and 30 of them have been modernised that provide top class client service. On the privatisation of the bank, Naeem said it is very much on the agenda, but when the bank is on good footing.

Talking about any political pressure on the bank, Naeem said there was zero political interference and the merit was the hallmark of the bank. He paid gratitude to Punjab Chief Minister Shahbaz Sharif for not allowing any political pressure on this organisation so it could stand on its own feet. He appreciated the Punjab government for injecting Rs 10 billion as advances subscription money in year 2009 and arrangements are being explored for further injection of capital to further strengthen equity base.