The decline in interest rate and new prudential regulations to decrease investment in capital market have brought negative impact on the capital gains of the Bank of Khyber (BoK) during calendar year 2004, sources in the bank told Business Recorder on Thursday. The sources said that the year 2004 was very challenging and competitive period for financial services industry in Pakistan. However, BoK in the process of continuing to strengthen its position as a small but key player in the banking industry also worked hard to transform itself into modern and progressive bank.
The bank during last calendar year had registered a deficit of Rs 50 million as compared to the profit the bank had earned during 2003. However, it was due to the newly introduced prudential regulations, whose strict following caused decease in non-core business (investment in capital market) resulting in increase core business of the bank.
The sources added that due to new prudential regulations, the bank decreased its investment in capital market, causing decrease in capital gain by Rs 266 million. During 2003 the bank through investing in non-core business have earned Rs 416 million, but due to decrease in non-core business the bank had made a capital gain of Rs 150 million.
Similarly, the decreasing trend of interest rates during 2004 and further provision of Rs 250 million against non-performing loans (NPLs) also affected the after tax profits.
In this connection, when Business Recorder contacted Managing Director, Bank of Khyber, Dr Munir Ahmad said that decrease resulted to the reasons beyond the control of the management and attributed it to the new prudential regulations, which he said compelled the bank to decrease investment in capital market, which caused decrease in capital gains of the bank.
Defending the performance of the bank, he said that if the conditions of 2003 had prevailed during 2004 with the same financial resources, the after tax profit would have been more than Rs 651 millions. Similarly, comparing the negative impact of declining interest rate of average 1.7 percent he said that bank would have earned Rs 135 million.
He said that during 2004 the recoveries of the bank have registered improvement as it were Rs 533 million as compared to Rs 136 million during 2003, showing an improvement by Rs 397 million (292 percent).
"This still need further improvement and as such as we are evolving new strategy and planning to reduce substantially the inherited default credit portfolio," he continued.
Dr Munir Ahmad said that due to the impressive growth in the core banking activities and increase in paid up capital the rating agency was expected to further improve the rating of the bank.
Praising the policies of the Governor, State Bank of Pakistan (SBP) Dr Ishrat Hussain, he said that the players of the financial markets feel more safe and strong under the leadership of the later, who transformed SBP in playing a dynamic and proactive role, emphasis on implementation of code of good corporate governance, risk management, prudential regulations, procedure manuals/policies and institutional risk assessment framework.
When asked about the opening of new branches, he said we need to have further expansion of branch network to attract more customers for taking higher market shares.
"Since 1997 we have not been given fresh licences to expand branch network, which is one of the biggest hurdle in the progress of the bank," Dr Munir pointed out. He said that the BoK was requesting SBP for the approval of the new branches.
He said, we are making all out efforts for improvement within shortest possible time and working hard to operate professionally with all the risk management and controls adding that procedure manuals/policies and institutional risk assessment framework are under preparation for the approval of the board of directors.
He said, though we are still the government entity, but the government as well as the board of directors are determine to eliminate the existing as well as potential risk of the mismanagement and corruption.
The managing director, BoK said, the bank has the potential to become dynamo of growth. "At this turning point we have left our past and started equipping ourselves for the coming challenges," he maintained. He said that BoK is adopting new strategies and plans for development and started providing excellent banking services with all tools of risk management and controls to mitigate/eliminate the existing as well as potential risk factors.
The BoK, he said is looking to the future with strong confidence and optimism. The strenuous efforts are needed to put the bank on the track of financial success. The task is daunting and needs determination to meet the challenges for its revival.
The management is in the process of structuring appropriate risk management strategies to identify, quantify and manage existing and potential risk exposures. All the banking activities are under process to execute one of the major risk management techniques of "Segregation" for effective management control. The manuals therefore are under preparations, he concluded.
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