NBP reaches agreement with US regulators

KARACHI: National Bank of Pakistan (NBP) said it has reached an agreement with US regulators to pay $55.4 million in fines imposed on its New York branch due to historical compliance programme weaknesses and delays in making compliance-related enhancements, a statement said on Friday.

However, there were no findings of improper transactions or wilful misconduct, the bank said.

The New York branch has been under new management since May 2020 and has substantially enhanced its compliance programme, according to the bank.

“US regulators have recognised the many positive changes resulting from new management. The NBP and the New York branch are fully committed to satisfying the regulators’ expectations,” it added.

The US Department of Financial Services in a statement said the NBP allowed serious compliance deficiencies in its New York branch to persist for years despite repeated regulatory warnings.

“Foreign banks that enjoy the privilege of operating in New York have an obligation to maintain effective controls, and the department will continue to promote financial transparency and take action to protect the global financial system when those obligations are not met,” it said.

Following examinations conducted by the Department and the Federal Reserve Bank of New York in 2014 and 2015, NBP’s New York branch was found to have inadequate bank secrecy/anti-money compliance programmes, Topline Securities analyst said in a client note.

As a result, enforcement action against the NBP was taken in 2016 where the bank agreed to improve compliance deficiencies, but it failed to do so.

As a result, the bank would now be subject to a $35 million penalty in addition

to certain deliverables for the improvement in its compliance programme, the analyst said.

“In addition to the fine by the US Department of Financial Services, the Federal Reserve Board also imposed a $20.4 million penalty against NBP on anti-money laundering violations totalling a penalty to $55 million which translates into Rs9.7 billion (Rs4.6/share),” he added.

The bank has reported earnings of Rs25 billion in the nine months of 2021.

The NBP is also faced with a pending pension liability case with potential liabilities of over Rs70 billion under which the company had filed a review petition in Supreme Court of Pakistan. Further judgement is still awaited.

“The bank due to the aforementioned reason has skipped dividends since 2017, we believe,” the analyst said.

The penalty on the bank and uncertainty over the outcome of the pension liability case would have a significant impact on the bank’s profitability and capital adequacy ratio, he added.