The State Bank of Pakistan (SBP) is to rescue the Bank of Punjab (BoP) by providing Rs 10 billion as bridge financing, as the bank has been unable to comply with the regulatory Capital Adequacy Requirement (CAR) of 9 percent as on December 31, 2008, sources in Finance Ministry told Business Recorder.
The BoP is presently facing a shortfall of about Rs 20 billion to comply with the regulatory terms and conditions. Sources said that the State Bank had extensive deliberations with Punjab government on this serious regulatory lapse, and the later agreed to inject Rs 10 billion to strengthen the capital requirements of the bank.
However, the provincial government has requested the federal government to provide Rs 10 billion as bridge financing facility on soft terms, as the former is experiencing budgetary constraints.
Given the scale of operations of the (BoP) and to retain market confidence, SBP has requested for Finance Division's concurrence to provide financing facility to the Punjab government, through allocation of required funds, which are available under the credit guarantee scheme, with the following exceptions in the parameters of the scheme: (i) applicability of the scheme to the Punjab government; (ii) rate of return on soft terms as decided by the SBP; and (iii) relaxation in the tenure of the loan, as decided by the SBP since the loan may go past the expiry of the scheme itself.
Sources said that in December, 2008, the federal government had launched a credit guarantee scheme for the financially-troubled small banks with an aggregate amount of Rs 75 billion, through SBP, to enable the ailing banks to meet their liquidity requirements. The scheme is meant for supporting the small banks having total assets not exceeding of Rs 50 billion, and is being administered by the SBP.
According to the scheme, the federal government has guaranteed repayment of all financial facilities extended by the SBP to small banks, each having assets not exceeding Rs 50 billion, based on its annual audited accounts as of December 31, 2007. In order to meet the emergency requirements, sources said, approval of the federal government in this regard has since been conveyed to the SBP.
In 2007, SBP had expressed great concern over the BoP's "system and controls", terming them "quite weak", while the internal audit of the Bank had repeatedly cautioned the management on the huge facilities offered to certain companies. The recipients of huge loans include owners of some companies that do not exist at all. In other cases, fake identity cards were used, and over-evaluated properties were pledged as collateral.
A report submitted by the General Manager, Audit, to the Bank President on May 25, 2007, showed that the bank, instead of listening to earlier warnings, had released more money to such companies with which it was cautioned to be careful in its future dealings. Almost a year before, former President of BoP, Hamesh Khan, allegedly involved in Rs 9 billion fraud, escaped from the country despite the fact that his name was put on the Exit Control List (ECL).