KARACHI: A sigh of relief swept through financial circles in the country on Friday as the difficulties of HBL, the country’s largest commercial bank, ended with a fine and nothing more.
The quantum of the fine, at $225 million, is substantial, coming in at more than two-thirds of last year’s total profit after tax, but poses no risk to the stability of the bank or the country’s financial system, as was feared.
The worst case scenario, according to a report from Arif Habib Ltd, is that the bank will pay no dividend in the next 12 months. “The fine will be financed via a foreign loan,” says the report, adding that it will be reflected in third quarter calendar year 2017 results.
This mitigates any adverse impact on the country’s forex reserves. The brokerage and investment house is optimistic about the bank’s future, pointing to the recently acquired licence for operations in China as providing the basis for future growth.
Fears of wider risks disappear following the out-of-court settlement
The Capital Adequacy Ratio (CAR) of the bank will decline by two percentage points to settle at 13.4pc after the payment, according to the report. Under State Bank regulations, this is meant to be at 11pc.
“Resultantly, we expect the bank to raise its tier II capital in order to beef up its CAR to the previous level. The bank is not expected to raise tier I equity and therefore no dilution will take place.” Other market players estimated that tier I capital of the bank may come down to 10.1pc from 12pc as a result.
But fears of any risk to the solvency or stability of the bank receded rapidly in the wake of the announcement of an out-of-court settlement, as well as all chatter about any systemic risk to the overall financial system. HBL’s share price rose by 5pc on Friday, the first day of trading since the announcement of the consent order.
Published in Dawn, September 9th, 2017