Islamabad: National Bank could be in danger of a financial meltdown as its equity will get eroded by 1/4th said its President Saeed Ahmed if it loses a review petition filed in the apex court against its decision to provide pensions to retired and existing employees at old rates on Tuesday.
After Supreme Court’ decision, the share price of NBP has nosedived on the Pakistan Stock Exchange (PSX), with financial experts by lowering investment call and target price, reported a local newspaper.
Because of SC’s decision, NBP’s balance sheet is expected to take a severe hit of Rs47.7b, resulting in a loss during 2017, Ahmad told the National Assembly Standing Committee on Finance. He added Rs31b equity will be wiped from the bank’s balance sheet because of SC’s decision.
Ahmad said the bank’s equity currently stood at 24pc which could be eroded by 24pc in case of implementation of SC’s decision. He voiced fears to the parliamentary panel that the bank will be unable to meet its capital adequacy ratio (CAR) which may fall to 7.9pc against the required 11.28 stipulated by State Bank of Pakistan (SBP.
Currently, CAR of NBP stood at 14.85pc way above the limit stipulated by central bank, Ahmed told the parliamentary panel.
SC’s decision has been damaging, as it has put NBP in a difficult position and will force it to decrease its credit exposure or will request other banks to buy its loans, said Ahmed. He added it raises the specter of NBP in failing to make necessary provisions in previous years.
In this scenario, Ahmed stated NBP will have to meet the SBP and international regulators stipulations by altering its dividend policy and may also require conducting a rights share issue to raise capital from current shareholders to keep the bank afloat.
According to Acting Governor SBB Jameel Ahmed said if NBP loses its review petition in the SC, it will have to look for alternatives to meet its regulatory requirements.
This isn’t the first time NBP has been in the news for wrong reasons; it had earlier suffered Rs18.7b losses due to fraud at its Bangladesh branch aside the Rs47.8b it is taking now.
NBP President added its leverage ratio will also be affected and fall below SBP’s requirements if its balance sheet takes a Rs47.7b hit. Currently leverage ratio stands at 3.04pc, which will fall to 1.56pc in case if it takes the equity hit of Rs47.8b.
Ahmed warned the SC decision, will impact NBP’s operations in Saudi Arabia, United States, Europe and Bahrain as its financial position would become untenable.
