May 28, 2002	Tuesday	Rabi-ul-Awwal 15,1423

KARACHI, May 27: More than 40 years old Industrial Development Bank of Pakistan (IDBP) is begging for a cash injection of over Rs17 billion to make it viable and operational by June-end next.

One of the two pioneer financial institutions of Pakistan, the IDBP played a pivotal role in helping a large number of business families to build up their business empires. In return, the IDBP got a bulging portfolio of bad loans amounting to Rs24.12 billion from the business groups.

More than Rs16 billion is the principal amount while over Rs8 billion represents the accumulated interests by end of December last.

About 85 per cent of this over Rs24 billion loan portfolio is reported to have been classified. Cases involving about Rs12 billion are in litigation and the bank has been able to obtain decrees in respect of 326 cases involving a loan amount of more than Rs6 billion.

The IDBP’s financial position, in most soft words, can be described as ‘fragile’. Its net worth last December was Rs16.74 billion. During 00-01, the IDBP suffered, on a average, Rs170 million loss every month. This has now increased to about Rs226 million a month in the current fiscal year. Total operating losses calculated during July-December 01 are said to be about Rs1.34 billion. Accumulated losses of IDBP at end June, 01, were Rs18.34 billion and banking circles say that these total losses will go beyond Rs19 billion by end June next.

A high-level meeting was reportedly convened by Finance Minister Shaukat Aziz in November last year to review IDBP’s position and work out a salvage plan. Following that meeting, the State Bank of Pakistan had offered a Rs5 billion credit line to the IDBP on government guarantee in February this year.

As if all these problems were not enough, the IDBP has liabilities of more than Rs7 billion high-cost deposits which are about to be matured by end June next. At present, the IDBP is utilising Rs5 billion loan from the SBP to pay for these deposits and trying to convince depositors to roll over and defer this payment.

A medium-term restructuring plan drawn up by the IDBP’s officials in consultation with finance ministry and the State Bank of Pakistan suggests conversion of Rs10.64 billion accumulated loans of government and the SBP into equity. This accumulated loan of Rs10.64 billion includes Rs8.77 billion of the government and Rs1.86 billion obtained from the State Bank for local machine financing, golden handshake assistance and support obtained from blocked amount.

The IDBP also wants the conversion of recently obtained Rs5 billion line of credit from the SBP into equity at a later stage.

Calling it a ‘plausible option’ the IDBP officials are more than frank in admitting that it is beyond the bank’s capacity to repay it.

Even then bankers see a large gap of Rs2 to Rs3 billion to surmount the accumulated losses of the IDBP and convert its negative equity into positive by at least Rs1 billion.

Officials claim to have stepped up recovery drive to mop up about Rs2 billion. More than Rs1 billion is reported to have been recovered in the current fiscal year.

“The bank’s liquidity crunch has become acute due to its weak image and low credibility,” an official document acknowledges frankly and speaks of difficulties in raising fresh deposits despite the government’s constitutional guarantees.

Right now the IDBP is embarking on a corporatization path engaging three country managers and other professionals as the management structure was found to be outdated.

“Privatisation is on the agenda but not the IMF and World Bank way,” an official remarked, who expects that by June, 2003, when the IDBP would have started functioning smoothly it is bound to attract one of the existing financial institutions for a buy-out, particularly because of its commercial bank licence.

Banking circles take name of Pak-Kuwait Investment as one of the prospective buyers, but then it is still too early to predict.