KARACHI, Jan 15: Industrial Development Bank of Pakistan, one of the country’s oldest DFI, that helped build the country’s industrial edifice, will be privatized with a clean balance-sheet and on the franchise value of its commercial banking licence, sources said.

For the past few years, the State Bank has suspended issuing licences for commercial banking. Those wanting to float a commercial bank are intended to be tempted to purchase IDBP. The bank has 370 employees and 19 branches in major cities. The staff is expected to be reduced radically through a separation scheme.

The government is committed to liquidating of development financial institutions and feels strongly that the DFI concept is dead. The NDFC was recently merged with the National Bank of Pakistan and two smaller organizations — Small Business Finance Corporation and Regional Development Finance Corporation — were amalgamated into a new legal corporate entity — SME Bank.

Ultimately, the bank is intended to be privatized. PICIC is being managed by the private sector.

Sources said the IDBP’s losses might be written off and non- performing loans might be transferred to the CIRC. The government loans may be capitalized through debt-equity swap and the IDBP’s paid-up capital, a mere Rs157 million, may be raised before the sell-off.

Sources said the IDBP had not complied with the State Bank’s prudential regulation, requiring paid-up capital of Rs500 million. In June 2000, the State Bank allowed relaxation in prudential regulations whereby the bank will treat the shareholders equity as of June 30, 1997 (i.e. Rs500 million) for purpose of calculating per party lending limits under prudential regulation subject to the condition that all loans exceeding Rs50 million secured other than cash collateral be approved by the board of directors. The negative shareholder’s equity resulted in non-compliance of the prudential regulation regarding the limit of bank’s exposure to single party.

As on June 30, 2000, the IDBP had an outstanding loan portfolio of Rs23,198 million out of which the non- performing portfolio, as determined by the bank itself, was Rs15,029 million against which a provision of Rs7,822 million has been made. However, the auditors were unable to confirm balances from borrowers aggregating Rs4,585 million.

In the absence of any independent evaluation, they were also unable to verify the adequacy or otherwise of the provision based on prudential regulations.

The bank’s assets amounted to Rs21.5 billion against liabilities totalling Rs28.6 billion, with net assets sinking into negative territory with a minus Rs7.15 billion.

The accumulated losses carried forward were to the tune of Rs8.6 billion in 2000, up from Rs5.77 billion in year earlier. The losses before taxation for the year 2000 amounted to Rs2.77 billion.