In spite of trying to increase its operational profit, the existing management of the Bank of Khyber (BoK) has depended on the sale of securities to sustain profits.

The public sector bank which was established in 1991 — two years after the Bank of Punjab and 19 years before the Sindh bank — aimed to mobilise private savings and public funds to promote industrial, agricultural and socio-economic activities in the province.

Over the years, due to its name coming up in political manoeuvring, the bank’s market share slid.

The Bank of Khyber was incorporated by the provincial government through seed money of just Rs500 million.

During the first 17 years of its inception, the bank opened 34 branches country-wide and its average after tax profit was only Rs20m.

However, the BoK showed rapid progress from 2008 till 2012. Its branch network expanded from 41 branches to 77, while, for the first time, the bank not only achieved a billion-mark profit by recording Rs1.08 billion profit after tax, but also increased its assets to Rs82bn from a mere Rs31bn.

In the past few years, the bank’s total assets have increased to Rs192bn, while nationwide branches have reached 150. Of these, 86 branches are in KP while 64 are in the rest of the country including three in Azad Kashmir and one in Gilgit-Baltistan.

It’s after tax profit also reached Rs2.02bn in 2016 from Rs1.78bn the previous year.

While data indicates significant progress in terms of expansion and profitability, it seems the tools used for achieving this growth are unsustainable.

In 2014, the bank declared after tax profit at Rs1.3bn. However, Rs459.586m was gained through sale of its Pakistan Investment Bonds that the bank had previously purchased.

If these gains are removed the bank would show a profit of only Rs849.834m indicating a fall from 2013.

In 2015, the bank showed an after tax profit of Rs1.79bn. Of this Rs1.19bn was gained from sales of interest bearing assets. With the exclusion of this gain, the bank’s actual profits arrive at Rs599.817m in the year under review.

Similarly, in 2016, the bank declared after tax profit of Rs2.02bn. This was achieved through sale of securities worth Rs2.13bn. Once removed, actual earnings are much lower.

According to a banker, the only beneficiaries of profit gained through sale of vital assets are those investors who have a short term interest in the bank.

On the other hand, the bank’s administrative cost has increased manifold in the past three years.

In 2014, the bank’s administrative cost was around Rs2.42bn. This increased to Rs3.21bn in 2016 due to the bank’s high induction rate, opening of new branches and increase in management salaries.

Data also shows that more than 73 branches, or 54pc of the bank’s branches, recorded losses.

According to the BoK’s financial statement as of September 30, 2016, the bank had assets of Rs192bn, out of which Rs142bn were invested in government securities, while only Rs24bn, or 13pc of the total assets, were given as loans in the country.

Interestingly, KP’s share is Rs10bn, or around 5pc of the total loans given in the country.

This calls into question the BoK’s purpose of establishment. To what extent can a provincial bank contribute towards helping industries with such meagre contribution?

When approached, the BoK Company Secretariat’s official response was that the bank had sold out a portion of its securities on which it realised its capital gains, and that it was a normal banking process, which was being adopted by all other commercial banks in 2016.

They stated that the bank planned to continue the same practice in 2017 as well.

The secretariat further explained the increased administrative cost obtained because of opening of new branches and induction of human resource. And that for the first two years bank branches normally report losses.

On the role of the bank in giving lesser credit in the province, the BoK secretariat went on to state that business activity was slow in the province and that the economic condition in the province generally remained depressed with little demand for credit.

While the bank stated it was committed to providing credit where opportunities arose, it also acknowledged that it had to avail opportunity even if they were ‘out of the province’ since that’s where the big projects were’.

The BoK gives more than Rs1bn annually to the KP government in the shape of dividends besides providing employment to more than 2500 employees’.

On Aug 22, written questions were sent to the Khyber Pakhtunkhwa information department in order to seek an official response on the affairs of the BoK. As per follow-up, the questions were also submitted to the offices of the finance secretary and the finance minister.

Till the time of publication no response was received from the KP finance department despite repeated requests.

Published in Dawn, The Business and Finance Weekly, August 28th, 2017