KARACHI, March 4: The government has decided to corporatize Pakistan Industrial Development Bank (IDBP) to prepare it for privatization.

Badr-ud-din Khan, head of the bank, told Dawn that the Manila-based Asian Development Bank has been approached by the government for assistance to restructure the IDBP, and some positive discussions were held with the visiting ADB officials. ADB officials have indicated that they would support the bank’s restructuring for privatization.

The government is stated to have approached the ADB for restructuring of ADBP and IDBP. The privatization of the IDBP is outside the IMF agenda.

The State Bank of Pakistan has also provided IDBP with a fresh line of credit of Rs5 billion against government guarantee, says the bank’s managing director, steering the privatization process.

The fresh infusion of blood is expected to improve the bank’s balance sheet by retiring expensive deposits that have been, apart from non-performing loans, a drag on financial performance of the bank.

As the IDBP is also a scheduled bank, the franchise value of the commercial banking licence may serve as a bait for buyers. The State Bank has suspended licences for commercial banking. Investors have, however, the option to float Islamic banks, whose mode of financing has to be Sharia-compliant. So far only one licence has been applied for and granted by the Central Bank.

Badr-ud-din Khan said that loans repayable by government amounting to about $11-12 billion would be converted into equity before offering the bank for sale. Currently, the paid-up capital is a mere Rs157 million. Bad assets would be transferred to CIRC for auction. An IDBP study, however, reveals that the outstanding loans include about 40 per cent penalty as interest on non-performing loans.

Of about Rs23 billion outstanding loans, according to balance-sheet for 2000, approximately Rs.15 billion were non- performing loans against which a provision of Rs7.8 billion were made in the year 2000. The auditors were unable to confirm balances from borrowers totalling Rs4,585 million.

So far, four DFIs, NDFC, Bankers Equity, RDFC and SBFC, have been liquidated, as the government feels development financial institutions have outlived their utility. PICIC is in the private sector and has acquired a commercial bank to strengthen its business. IDBP has a licence for commercial banking but somehow its focus has always been on development financing.