ISLAMABAD: The opening of a branch by National Bank of Pakistan (NBP) in China has run into snags due to a recent decision by the apex court, which requires one-time capital adjustment of Rs47.5 billion on the bank’s balance sheet.

NBP President Saeed Ahmad told the Senate Standing Committee on Finance on Wednesday that the bank is all set to open its branch in China next year after getting licences from the regulator concerned.

However, the bank will not be able to meet the criterion if Rs47.5bn is eroded from the balance sheet, Mr Ahmad said.

SBP blames relations with Saudi bank for closure of HBL branch in New York

The Supreme Court recently ruled in favour of NBP pensioners – a decision that will have serious financial implications for the bank.

“We have to achieve Rs200bn bank balance sheet to open the NBP branch in China,” he said. According to consolidated financial accounts of the bank, its net assets amounted to Rs180.1bn at the end of 2016.

“We have received approval from Beijing and it has been sent for processing to the head office,” he added.

He told the committee that the bank’s non-performing loans as a percentage of total advances are coming down while lending for agriculture has increased recently. But borrowing by the textile sector is stagnant, he said.

Meanwhile, the committee gave the Finance Division, Establishment Division, Law Division, Auditor General of Pakistan (AGP) and Controller General of Accounts (CGA) three months to finalise the terms of reference on the separation of account and audit group cadres.

The committee was informed that the New York branch of Habib Bank (HBL) faced money-laundering charges and a fine, leading to its closure, mainly because of its business with Al Rajhi Bank of Saudi Arabia.

“To a large extent, business with Saudi Arabia’s Al Rajhi Bank was responsible for the downgrading and closure of the HBL branch,” SBP official Rizwan Haider said.

The committee was informed that decision-makers at HBL’s New York branch should not be blamed as the Saudi bank’s sudden downgrade was the source of the problem.

The committee was informed that the HBL branch had been operating in New York since 1978. In 2006, New York State’s banking regulator sought the bank’s compliance with regard to anti-money laundering (AML), suspicious activity reporting, suspicious transactions monitoring etc.

The branch received the “satisfactory” rating until 2011. It was downgraded to “marginal” in 2014 and “below satisfactory” in 2015.

Al Rajhi Bank also had a good standing with the Saudi regulator and was a major bank for remittances to Pakistan.

“This was the consideration of the HBL New York team while executing business with Al Rajhi... the decision to allow dollar clearance through the HBL New York branch was taken following due diligence in 2014 after JP Morgan closed the door on Al Rajhi for being a high-risk transaction bank,” the SBP official told the committee.

The committee was informed that some transactions of the bank were also restricted and management was asked to address deficiencies in AML compliance and clearing limitations.

Published in Dawn, October 5th, 2017