ISLAMABAD : The Auditor General of Pakistan (AGP) has accused National Bank of Pakistan (NBP) of extending undue favour to borrowers with weak financial positions and poor performance.
In its audit report of 2023-24, assets of NBP witnessed an increase of 26.95%, from Rs. 5,240,424.546 million in 2022 to Rs. 6,652,707.438 million in 2023, this sharp rise is attributed to increase in investments comprising of Equity investments, Treasury bills, Pakistan Investment bonds and Ijarah Sukuk bonds.
Total liabilities seen a rise of 26.93 %, from Rs. 4,939,576.787 million in 2022 to Rs. 6,269,951.845 million, this is mainly due to rise in deposits held with the bank and some portion due to increase in borrowings.
Revenue comprised of Markup and non-markup based revenues, on the markup front a massive increase of 44.44% was witnessed, from Rs. 116,826.514 million in 2022 to Rs. 168,747.584 million. This is mainly due to ever highest interest rates prevailing in the country. On the non-markup side, an increase of 10.69 % was seen due to gains on securities sold.
During audit of National Bank of Pakistan (NBP) Head Office, Karachi, and Regional Office, Faisalabad & Islamabad for the year 2021-2023, it was observed that an amount of Rs.170,347.796 million has not been recovered under different categories of debtors/borrowers . Of the total amount of 170.348 billion, corporate borrowers defaulted on Rs 116.522 billion, consumer & SMEs, Rs 38.901 billion, product financing Rs 2 billion, Islamic financing, Rs 914 million, Staff related loans Rs 66.543 million and others ( including Railways and Government drafts Rs 11.929 billion.
Audit is of the view that the non-recovery reflected weak financial controls and poor recovery mechanism which shows management’s failure to identify weak borrowers and taking remedial action in a timely manner.
The matter was reported to the management in November 2024. The management in its reply stated that management pursuing the cases on non recovery / litigation with defaulted borrowers. However, this reply is not tenable because a huge amount is still recoverable from the defaulters.
Despite requests and subsequent reminders on November 25, 2024, January 06, 2025 and January 13, 2025, DAC meeting was not convened by the PAO.
Audit is of the view that the issue was also reported earlier in the Audit Report for Audit Year(s) 2023-24 having financial impact of Rs.1,7120.710 million. Recurrence of same irregularity is a matter of serious concern.
During a special study of the role of NBP as an agent of SBP for the year up to 2022, it was observed that management had been irregularly retaining undrawn pensions in 108,413 dormant accounts amounting to Rs. 30,066,063,596 for consecutive six months or over, instead of debiting the pensioner’s account and crediting the respective government accounts, as required by Standard Operating Procedures (SOPs), despite reminders from the Accountant General Sindh to refund the amounts lying under dormant pension accounts.
Audit is of the view that irregular retention of undrawn pensions without crediting the same to Government’s accounts or refunding of amounts to Government despite various reminders and after lapse of significant time tantamount to loss to the Government.
Grant of fund facility to corporate borrowers with weak financial position – Rs. 27.842 billion .
The minutes of Board Audit Committee 240th meeting states that during credit review, external auditors have highlighted certain borrowers with weak financial position/performance, that should be closely monitored by the Bank. The Chairman advised that the status of these borrowers should be presented to Board Risk Credit Committee (BRCC).
During audit of National Bank of Pakistan (NBP) Head Office, Karachi for the year 2023, it was observed that the management granted funding facility to the borrowers despite their weak financial position.
The detail of borrowers as on June 30, 2023 is as follows, CPL , Rs 17.575 billion, JK Sugar Mills Limited Rs 4.389 billion, Waves Corporation Limited Rs 1.949 billion, Tariq Corporation Limited, Rs 894 million, Diamond Tyres Limited, Rs 691 million, Hashoo Holding (Private) Limited) Rs 536 million, Englander Industries Limited Rs 519 million, Dadex Enternit Limited Rs 450 million, Al-Haj Automotives, Rs 385 million, TPL Corporation Limited Rs 250 million and TPL Trakker Limited Rs 204 million.
Audit is of the view that the management’s decision to grant funding facilities to borrowers despite their weak financial position indicates significant weaknesses in the credit approval mechanism. The lack of prudent credit decisions may be attributed to inadequate credit policies and procedures, insufficient risk assessment, and ineffective oversight, which may result in significant credit losses, ultimately affecting the bank’s financial stability and profitability.
The matter was reported to the management in November, 2024. The management replied that the loan requests were evaluated based on merit and approved in accordance with the Bank’s established procedures. However, this explanation is not convincing, as the management’s decision to extend funded facilities to borrowers with weak financial positions and poor performance raises concerns about undue favoritism.
Audit has recommended that the management may review and strengthen the bank’s credit risk management and credit approval processes to ensure that funded facilities are granted only to credit worthy borrowers.
Divestment of NBP’s Shareholding in UNBL, UK and non-repatriation of sale proceeds GBP 22.900 million equivalent to Rs. 8,198.200 million: The SBP letter dated March 13, 2024, required National Bank of Pakistan (NBP) to submit a certificate from an external auditor and a Proceeds Realization Certificate within 30 days of a transaction involving the sale of NBP’s shares in United National Bank Limited (UNBL) to the Bestway Group, with the SBP later reiterating the need for compliance with local and host country laws and foreign exchange regulations. The SBP, in its letter dated April 3, 2024, advised NBP that its final approval for the sale was subject to compliance with applicable laws and regulations, and instructed NBP to repatriate the sale proceeds and file a Proceeds Realization Certificate with the SBP Exchange Policy Department. Rule 20 of PPRA Rules, 2004, stipulates that procuring agencies shall use open competitive bidding as the principal method of procurement for goods, services, and works.
During audit of National Bank of Pakistan (Head Office) for the year 2023, it was observed that:(i) The management sold its 45% shareholding in United National Bank Limited, UK (UNBL) to the Bestway Group for GBP 22.900 million, despite UNBL’s positive financial performance. Subsequently, management hired a valuator to assess the value of the property and a law firm for legal services without open competitive bidding. The property/assets value which was directly associated with shares price was potentially undervalued at GBP 25 million by valuator, resulted bank deprived the competitive price of shareholding, considering its prime location and heritage value. Management was of the view that Bestway Group was inexperienced for managing the banking operations, but UK regulator approved the control in favor of Bestway ;(ii) The Board approved the sale in its 356th emergent meeting on December 21, 2023. NBP obtained a No Objection Certificate from the SBP on March 13, 2024, requiring compliance with applicable laws and repatriation of sale proceeds. The Bestway Group credited GBP 22.900 million to NBP’s Bahrain account on July 4, 2024, but the proceeds were not repatriated to Pakistan. The management requested permission to retain the sale proceeds at NBP Bahrain Branch to cover NBP NY closure costs.
Audit is of the view that the sale of NBP’s shareholding was not conducted in a transparent and prudent manner due to lack of open competitive bidding, inadequate due diligence, which had resulted in a potential undervaluation of the asset, with the sale price of GBP 22.900 million being lower than the book value (GBP 30 million) and estimated market value (GBP 35 million), thereby potentially causing a loss to the bank. Furthermore, the non-repatriation of sale proceeds to Pakistan and retention of same as covering closure cost of NBP NY branch, despite the directions from the SBP, raises concerns about non-compliance with regulatory requirements.
The matter was reported to the management in November, 2024. The management in its reply stated that: (a) the decision of divestment was taken by the NBP BOD after considering all the aspects and proceeds with approval from SBP. There is no requirement of obtaining Ministry of Finance approval for making any divestment decision by the Bank. The reply is not tenable because the management considered its divestment lower than potential share value by assessing the property value at lower side. Further, being administrative ministry i.e. Ministry of Finance it was mandatory to get concurrence for this deal. The decision was made in haste within 20 days i.e. offer letter was received on December 07, 2023 and BoD granted approval of divestment on December 27, 2023 and ;(ii) divestment proceeds of UNBL, were utilized in line with the SBP approval of July 25, 2024.
Audit said that the reply is not tenable because the management did not repatriate the sale proceeds in Pakistan as per SBP NOC of March 13, 2024. Audit recommends that the management may probe the matter.
Ends
