July 15, 2006	Saturday	Jumadi-ul-Sani 18, 1427

PESHAWAR, July 14: The State Bank of Pakistan has suggested to the NWFP government to consider offloading its shareholding in Bank of Khyber and repealing bank’s act, it is learnt.

In a recent letter to NWFP Chief Minister Akram Khan Durrani, SBP Governor Dr Shamshad Akhtar has suggested him to consider repealing the Bank of Khyber Act, 1991 and paving the way for transferring management to the private sector by offloading provincial government's shareholding in the bank.

"This is what the NWFP government would ultimately need to do," commented an official when asked about the suggestion.

In an attempt to encourage the provincial government to consider the proposal, Dr Shamshad has said that most of the banks having government shareholding are being prepared to offload their shares as part of the privatisation process.

"Past experience has proved that the overall performance of banks has significantly improved after the transfer of management to private hands," said the SBP chief.Appreciating the improvements made by the bank recently, the SBP governor has stressed the need for more efforts to strengthen good corporate governance practices.

"BoK has showed improvements in terms of credit growth and profitability during the last two years and is serving the cause of economic development of the NWFP well. The appointment of a permanent managing director after considerable delay will also contribute to further improving financial health of the bank," contains the SBP governor's letter to the chief minister.

It reads further: "A lot of work is still required for strengthening good corporate governance practices, preparing for policies, improving credit appraisal system, better risk management, preparing for NPLs (non-performing loans) reduction strategy, bringing down reliance on government deposits, recruiting professionals at key positions, developing corporate culture, improving IT infrastructure and strengthening bank's overall internal controls and system."

The SBP chief has also assured SBP's help in transforming BoK into a `dynamic and progressive' bank.

The suggestion, however, is in sharp contrast to the provincial government's plan to transform BoK into an Islamic bank announced in the budget for 2006-07.

Of BoK’s total 29 branches, five, including one each in Peshawar, Quetta, Dir, Bannu and Nowshera, were converted into Islamic banking after being issued licences from the SBB since the establishment of Islamic banking division in January 2003.

"Objective of the Islamic banking division is to gradually convert BoK bank into an Islamic bank in accordance with clause 19 of the Bank of Khyber Act, 1991," contains a document of the provincial government.

The government has recently floated 25 per cent of its shareholding on stock exchanges and offered 41 million ordinary shares of Rs10 each at an offer price of Rs15, including a premium of Rs5 per share.

The move brought down the provincial government's shareholding from the previous 87 per cent to 65 per cent.