PESHAWAR, July 13: With one of the highest infection ratios, dwindling profits, bickering at the top management level and blatant political interference, the Bank of Khyber is passing through one of its worst periods since it was established in 1991 through an act of the NWFP Assembly.
The NWFP government controls 87 per cent of shares, the remaining 13 per cent being owned by a German development bank, DEG. According to BoK's annual report 2003, the bank currently has a 44 per cent infection ratio, up from 13 per cent in 1999.
An official at the bank admitted the infection ratio that includes the bad debt and non-performing loans, should not exceed five per cent according to international standards.
The BoK management says the infection ratio is the result of some bad loans given out in the past that included a Rs1.2 billion loan to Makran Fisheries and Rs450 million to Pakistan Exports. Both loans were allegedly given on small securities.
The case of Makran Fisheries has now been sent to the National Accountability Bureau while the case regarding Pakistan Exports is under process. Both loans were given out in 1996-1997.
So flawed was the decision-making and monitoring at the provincially-owned bank that a former minister reportedly used part of a loan to pay for his personal expenses.
According to its annual report, the bank's advances have shown a steady decline over the past four years. The advances dropped from Rs6.5 billion in 2002 to Rs5.3 billion in 2003.
In a presentation given to the chief minister on July 3 on the bank's six months' performance, it was said that the bank's advances had increased to Rs7.6 billion by June end, 2004.
What he was not told was that the latest figures were that of approved advances rather than the net outstanding loans in the past six months, which would be far less. Investments too registered a drop from Rs9.5 billion in 2003 to Rs8 billion by June 30, 2004, showing a negative growth of 16.02 per cent, according to the presentation given to the chief minister.
The management however, hopes to achieve its target of Rs10.8 billion by the end of the current financial year. Deposits registered a small growth from Rs15.3 billion in 2003 to Rs16.6 billion by June 30, 2004 as against the projected target of Rs18.5 billion by the end of the current year.
The six-month balance sheet ending June 2004, also showed the bank's pre-tax profit for the first six months fall from Rs241 million in June, 2003 to Rs156 million in the corresponding period ending June, 2004.
If the Rs34 million NIT profits accruable in July, 2004 that are shown to be part of the overall profit in the first six months are deducted from the total amount, the profit earned in the last six months drops to Rs122 million.
Although the JCR-VIS Credit Rating Company, it revised the medium- to long-term rating of the bank from stable to 'positive' for the year 2003, the overall medium- to long-term entity rating of the bank at last year's BBB and short-term rating remains unchanged at A-2.
The head of the bank's treasury department, Amjad Pervez, resigned in March followed by the resignation of the chief financial officer, Saeedur Rehman, in June. Last week, the managing director sent two of its three executive vice-presidents - Amjad Ali Arbab and Dr Mohsin - on forced leave, apparently to hold an inquiry against them.
At least a dozen mid-level officers have also left the bank in the past six months for one reason or another. The bank is now without the head of treasury, while his deputy, too, resigned subsequently although, according to the management, for personal reasons.
Eyebrows were raised when those pulling the strings in the bank got a new head of the Islamic banking division, Mohammad Asad. Mr Asad was a loan defaulter of the bank, but he later explained that he had obtained the loan for his own business and could not repay the amount owing to certain problems. The loan has now been repaid after the matter raised in an official meeting.
Mr Asad was promoted to the office of vice-president, allegedly on the recommendation of Senator Prof Khurshid, a Jamaat-i-Islami stalwart and head of the Shariah Advisory Committee, for promoting the 'cause of Islamic banking and dedication.
The management insists the whole exercise has been done purely on merit. Questions are also being asked about the educational credentials of the managing director of the Bank of Khyber.
Dr. Munir Ahmad, who previously worked in the Dubai Islamic Bank, is said to have done his Ph.D. in Islamic banking from the Washington International University in Pennsylvania. Inquiries by Dawn revealed that Washington International University is a distant learning institution that provides accelerated one-year Ph.D. programmes.
In response to a request by Dawn seeking information on the status of the university, the Pennsylvania department of education wrote: "Washington International University is not authorized to operate in Pennsylvania, nor is it accredited by any accrediting agency recognized by the US department of education."
Dr Munir denies his Ph.D. degree is of dubious standing. The situation has been made worse by blatant political interference from outside. The Jamaat-i-Islami controls the finance ministry and, therefore, looks after the Bank of Khyber as well.
Officials acknowledge that under the Bank of Khyber Act, the finance department and the finance minister have no role in the affairs of the bank. The government can only be represented through its members on the board of directors.
The NWFP Minister for Finance, Sirajul Haq, appointed Mr Mohammad Asghar, a grade-17 officer from Pakistan Academy for Rural Development and a party affiliate, as his coordinator for the Bank of Khyber.
Bank executives now accused Mr Asghar of interfering in bank matters, although, they allege, he has no banking experience. They allege that the M.D., weakened by charges and allegations, has ceded all powers and looks up to Mr. Asghar for all orders. Mr. Asghar denies the charge.
In July last year, the bank management decided to send out a delegation to Germany after the DEG expressed its concern over political interference in the bank and threatened to pull out its share.
The delegation, apart from the finance minister, finance secretary and acting managing director, Qazi Munir, also included Mr Asghar and Senator Prof Khurshid. The BoK bore the expenses for the entire trip not only for those who were officially entitled but also for two members who had no concern with the bank.
The delegation that was ostensibly meant to visit Cologne, also went to Berlin, London and stayed in Dubai to talk to potential investors. Interestingly, when asked for the justification for sending Prof Khurshid and Mr Asghar on that trip, the latter replied that the senator spoke German and helped allay the concerns of DEG regarding Islamic banking.
The DEG, however, did not agree to increase its share from the current 13 per cent to 20 per cent till the time of public flotation of the bank share by the June end. This has not happened although the BoK management says it is working towards that end and hopes to get a good premium on its public shares.
Finance Minister Sirajul Haq in an interview with Dawn vehemently denied any political interference from outside. He said that all decisions were being taken on merit. The managing director on his part blamed his colleagues for leaking information to the press and painting a negative image of the bank in an attempt to cover up their own misdeeds in the past.
The present management, taking its guidelines from the MMA government, prides itself on introducing the Islamic mode of banking after the State Bank of Pakistan allowed it to convert one of its branches to the Islamic mode, instead of adding a new branch to its existing 29 branches.
But, according to insiders, deposits at the Hayatabad branch of the bank dropped from Rs531 million at the time of its conversion in November 2003 to Rs319 million. The profit dropped from Rs5.9 million to Rs300,000.
It was only through the operation of its treasury division that the Islamic banking division posted a profit of Rs3.2 million. The BoK management insists that the Islamic banking division had posted a net profit of Rs2.02 million by June 30, 2004.
