KARACHI, March 11: After years in business, companies listed on the Karachi Stock Exchange have learnt that when the regulators get in touch, it is rarely to deliver good news.
So a letter written to NIB Bank Limited by the front line regulator on Tuesday pointed to a bizarre error in the methodology followed by the bank in declaration of financial results for the year ended December 31, 2007.
According to the official concerned at the KSE, the bank had communicated the ‘stand-alone and consolidated’ financial figures for 2007 on Feb 27 posting profit after tax (PAT) at Rs480.86 million.
Ten days latter on March 7, the bank passed on another sheet of paper to the KSE showing that the bank had actually incurred loss after tax amounting to Rs111.49 million. The bank cited “oversight” as the reason for the earlier erroneous communication of results and said that a subsequent review had revealed the actual numbers.
The regulator is understandably furious. Apart from a complete turnaround in the financial results converting the earlier declared after tax profit of Rs480 million to a loss of Rs111 million, it took as many as 10 days for the bank to realise that a grave error had been committed as an ‘oversight’ and to notify the KSE accordingly.
An ‘oversight’ of a million rupees here and there could be in order but such massive turnaround, conveyed to the Exchange and shareholders after a lapse of 10 days, is as the KSE official says: “not understandable to us”.
Analysts say that the consequences of inaccuracy could be substantial. Being ‘price sensitive information’, losses may have been caused to investors, who bought shares placing their faith on the first figures.
A cursory glance at the pattern of trading in NIB Bank scrip shows that on Feb 27, when the stellar profit figures were first announced, the scrip gained 85 paisa during the day’s trading to close at Rs22.25 with turnover of 39 million shares, the highest for a single session in Feb.
On March 7, when the loss was notified, the stock dropped by 35 paisa to finish at Rs21.05. In between the 10 days, the bank’s share shed Rs1.20 or 5.4 per cent of its value.
The KSE has asked the bank to communicate within three days the ‘causes and circumstances under which the purported error was made”. Analysts are at a loss to understand what really could have transpired.
A professional accountant said that a late ‘adjustment’ may have pushed the financial numbers from black into red. But that also would raise a forest of question marks, the principal being the audit of accounts. Did the auditors certify the first figure or the second? Listed companies as a rule declare the audited numbers.
It would, nonetheless, be unwise to unleash a wave of tirade against a bank, which has considerably raised its reputation of a fast-growing financial institution, managed by bankers of vast experience.
After step-by-step merger of NDLC-IFIC-Credit Agricole Indosuez-PICIC-PICIC Commercial Bank and its affiliates, the network of the bank has expanded to 240 branches and total assets have soared to over Rs185 billion.
Consequently, NIB Bank claims second highest paid-up capital of around Rs27.5bn and 7th amongst the largest commercial banks in terms of distribution network. In March 2005 Temasek Holdings of Singapore acquired 25 per cent shareholding which has been raised to 70 per cent, making the Singapore institution the largest investor in the bank.
But for all that investors and shareholders would be looking forward to an explanation for the obviously ‘not understandable error’ in financial figures reporting. A suitable reply from the bank might provide the shareholders the comfort and set fears of loss for the bank and more for their own investment in the company stock, at rest.
