BoP challenges commission deduction by NAB

ISLAMABAD: The National Accountability Bureau (NAB) is facing serious charges by the Bank of Punjab (BoP) for deducting millions of rupees commission on recovery of bank loans and now starting an inquiry against the bank in an allegedly frivolous complaint.

The BoP was at the verge of default in 2008 as the volume of non-performing loans had reached to Rs 80 billion. Media broke big scandals of loot and plunder in BoP during 2002-08 in form of big loans acquired by submitting fake documents. Following continuous coverage in media of the frauds and the Supreme Court’s repeated intervention in the matter, money was recovered through NAB. However, the Bureau deducted ‘commission’ worth millions from recovered billions of rupees in violation of its own rules.

The BoP challenged this act in the Lahore High Court (LHC).

According to BoP sources, the Bureau was not happy with this and conveyed it to the bank management many a times to withdraw these cases. However, the NAB, after its failure from convincing the bank management to withdraw the cases, initiated an inquiry against the management for issuing rights shares of 70 per cent in 2017 at a premium of Rs 2 per share without having complete understanding of the issue on the basis of dubious complaint.

The complaint was filed by Ali Aslam Malik who claimed that the BoP had issued rights shares which inflicted billions of rupees loss to national exchequer. Interestingly, the complainant is also a defaulter of the bank who has yet to pay more than Rs 400 million.

The BoP has challenged the NAB decision of initiating inquiry as both the Bureau and the complainant have serious conflict of interest in this matter.

The NAB spokesperson was contacted to get the official version on Thursday October 04. However, he said he would forward the query to the relevant department and get back to this scribe soon. When the spokesperson was contacted in the evening, he said the department had not responded yet. “I will get back to you as soon as the concerned quarters respond to your query”, said the spokesperson. Despite the passage of five days, this scribe hasn’t received any response.

The documents available with The News reveal that the NAB has initiated an inquiry against the BoP’s top management, including President Naeem-ud-Din, for issuing right shares that may inflict a loss of billions of rupees to the national exchequer.

According to the Finance Dictionary, the right shares are the shares that are issued by a company for its existing shareholders who have the right to subscribe to these unless some special rights reserve them for some other persons.

The complainant besides being defaulter also owns a stock brokerage house M/s First National Equity Limited and was already holding more than 50 million shares of BoP.

On February 23, 2017, when the matter was pending before Bank’s Board, the BOP president received a letter from Ali Aslam, demanding to postpone/adjourn the issuance of right shares. He had also written the same letter to the Chief Minister of Punjab, requesting to halt the process.

Upon receiving the letter, the BoP postponed the issuance of rights shares and discussed the matter in the Board of Directors (BoD) meeting. The BoD on March 2, 2017 discussed the complaint of Ali Aslam in detail and unanimously decided to proceed with earlier proposal of Right Issue and advised the management to submit formal proposal in the next meeting. Subsequently, approval was secured from the Government of Punjab on March 28. The BoD also gave go ahead on March 29 for the issuance of 70 per cent right shares at a premium of Rs 2 per share.

Giving the logic and reasons for issuing right shares, the Bank president stated in the writ petition bearing No 226871 that when the current management took over the Bank in 2008, it was at the verge of liquidation owing to imprudent lending decisions of previous regimes. The Bank’s market perception was very negative due to Harris Steel like fraud, liquidity crunch, non-performing loans were as high as Rs80 billion, Capital Adequacy Ratio (CAR) was negative 14 per cent and the Bank had disclosed a loss of Rs17.5 billion by 2008-end.

During this restructuring phase, the Government of Punjab, which is the majority shareholder, deposited share deposit money of Rs 10 billion in 2009 and Rs 7 billion in 2011 under agreed arrangement to stabilise the Bank. Against this advance subscription money of Rs 10 billion, the Bank issued right shares in two phases of Rs 5 billion each in 2013 and 2014.

“Though financial viability created through capital management measures and superlative performance, nonperforming loans of Rs 16.5 billion remained un-provided by close of 2016. The paid up capital of the Bank was Rs 25 billion and if the Bank provides cover to Rs16.5 billion bad loans, it will fall below the capital adequacy ratio (CAR). It was therefore the Board of Directors approved a comprehensive Capital Management Plan for meeting the SBP’s provisioning requirements and pave way to meet CAR requirement. It was decided to convert the share deposit money of Rs7 billion, deposited by the Punjab government in 2011 for another issue of 70% right share. In addition, a Letter of Comfort (LOC) was secured from the Punjab government on December 31, 2017 to get the SBP’s prudential regulations relaxed till December 2018,” says the BoP management in its writ petition.

Through this way, the Bank would have enabled to support the capital structure, ensure the retirement of Letter of Comfort (LoC) issued by the Punjab government and achieve compliance with BASEL-III Capital Requirement of SBP. While issuing right share, the Bank management ensured compliance with SECP’s Companies (issue of Capital) Rules 1996, Listing Regulations of PSX. Later, the Bank’s operational profit of Rs 8.7 billion which it earned in 2017 proved that the Capital Management Plan approved by the BoD in 2016 successfully generate a solid stream of earnings with consistent growth.

In order to give confidence to investors, Bank President Naeem-ud-Din in a normal course from open market also purchased ONE million shares in different tranches and accordingly informed about the purchase of shares to BoD as the provisions of Securities Exchange Act 2015 and Listing Regulations of Stock Exchange. This act was duly recorded and allowed by the Board and this was also brought in the knowledge of SECP.

The documents further show that the SECP had also conducted a detailed inquiry into the issuance of 70 per cent rights shares at a premium of Rs 2 per share by the BoP. The SECP’s report dated January 10, 2018 states that no fluctuations in the shares of the bank were proved, all the steps were taken in accordance with law and thus no violation of existing rules and regulations was found. On the complaint of the same person, the matter was also inquired by a committee formed by the Government of Punjab and no irregularity was found.

The Bank management says in the writ petition that NAB has no jurisdiction and power to look into the matters pertaining to the business of a Bank as it falls within the exclusive jurisdiction of the SBP and the SECP being the regulators. The matter does not fall under the ambit of NAB and therefore proceedings initiated by NAB are illegal, unlawful and of no legal effect, stated the writ petition and prayed the court to restrain NAB from encroaching on the jurisdiction of the SBP and SECP and also be stopped from proceeding further in its inquiry against the management of BoP.

The BoP management, while responding to The News queries, informed that the right shares were issued with the approval of its Board of Directors, State Bank of Pakistan (SBP), the SECP and its majority shareholder, which is the Government of Punjab. Similarly, the BoP president purchased the shares with the approval of the BoD and all the required formalities were fulfilled in this process.

It says the Bank management believe that with postponement of issue of right share, he wants to maintain his monopoly for the purpose of fluctuation of share price in stock market, whereas the issue of right share was beneficial for the BoP, public and other shareholders of the Bank.

“The NAB is an aggrieved party against the BoP, as its management has filed several writ petitions against the Bureau. In two of the petitions filed at Lahore, the Bank has claimed back hundreds of millions which have been deducted by the NAB on account of commission for the recovery affected through the office of NAB. The Bank was constrained to file the writ petitions and to challenge the certain decisions of NAB on account of a judgment passed by Balochistan High Court. The NAB has not been happy by this act and repeatedly conveyed that the writ petitions should be withdrawn. The management and the officers of the Bank are being called for investigation by an agency which already has grievances against the Bank,” claimed the BoP management.