KARACHI, June 23: Two days after damage had been done, the government of Punjab — the majority stakeholder in the Bank of Punjab (BoP) — came out with a handout on Friday afternoon in support of the bank.

“The Punjab government wishes to state that being major stakeholder in the BoP, it has full faith in the management and operations of the bank,” the handout read and added: “The government further pledges its unequivocal support to the bank and firmly believes that the affairs of the bank are sound and its financial health robust”.

Speaking purely from the stock market’s point of view and without comment on media reports about the bank’s loan portfolio and expression of weak internal controls etc., as were reportedly pinpointed by the bank’s internal auditor and the warnings said to have been given by the State Bank of Pakistan, it has to be said that the Karachi Stock Exchange took a massive beating.

On Friday the KSE-100 index plunged by 153 points. The stock in BoP, which stood tied to those of all major commercial banks and they in turn to the entire market, the share prices had to land at the bottom of the pit, as they did.

Aggregate market capitalisation of the commercial banks sector on KSE dropped by Rs35 billion in last two working days. At Rs1,208 billion, the market capitalisation of commercial banks accounts for one-third of all the market and is highest among the 34 sectors listed on the KSE.

The share in BoP dipped by 8pc or Rs9.55 in two days to close on Friday at Rs108. On Thursday and Friday together 58 million shares in the bank were traded. It is difficult to quantify the gains and losses, but unsuspecting investors ought to have lost heavily. And it is equally safe to say that ‘short sellers’, if there were any or many, must have made immense gains.

Could the catastrophe have been avoided? From hindsight it could be said that there was a possibility. But all who should have acted to save shareholders’ loss stood watching from the sidelines.

The government of Punjab could have come out with its statement on Thursday morning, instead of waiting till the close of market on Friday afternoon. The SBP which is the watchdog of the financial sector, surprisingly looked the other way, while nervous investors were throwing away shares on the strength of media reports.

The Karachi Stock Exchange, frontline regulator, made no efforts to calm investors’ fears. And how divorced is the apex regulator, Securities and Exchange Commission of Pakistan (SECP) from the happenings in the market could be gauged from the fact that an important person at the SECP who picked up the phone on Friday afternoon, when asked why the regulator had made no move to ascertain the accuracy of the media reports asked: “which report?”

Then there is the question: Could the BoP President, Hamesh Khan, who had received Rs38 million in remuneration and bonuses in the year 2006, shortened his recreations in Dubai and caught the first flight back home, instead of leaving trouble shooting to ineffective colleagues.

Credit rating agencies did not come out with an opinion on the quality of bank’s debts and why must they unless asked for? The same goes for external (statutory) auditors who are appointed by the shareholders in the Annual General Meetings, unlike the internal auditor who is an employee of the company/bank.

The accounts of the bank for the years 2005 and 2006 were audited by two different audit firms, but both among the top five auditing firms in Pakistan. Their report to the shareholders issued after “due verifications which in case of loans and advances covered more than 60 per cent of the total loans and advances of the bank”, were ‘unqualified’ or clean.

Finally, is something really wrong with BoP? Why not ask the Advisor to Prime Minister on Finance, Dr Salman Shah? His photograph appears inside the cover page of Annual Report for the year 2006, as one of the ten sitting members on the bank’s board of directors.