Citibank reviewing bids of Faysal and Silkbank after talks with HBL collapse

The major foreign banks operating in Pakistan are, reportedly, rolling back their consumer financing network in the country where, the banking analysts believe, a snail-paced judicial system was rendering the banks unable to recover their non-performing loans. They, however, would continue with corporate and investment banking, muck like the local banks which, having adopted a risk-averse behavior towards the private borrowers, are pocketing huge sums through diverting their advances to the risk-free and heavily-weighted government securities.
The Citibank, the sources said, is all set to shut down its consumer banking division in Pakistan. Other foreign banks, likely to follow the suit, are believed to be the HSBC and Barclays, suggest the unconfirmed reports. The Citibank, which has marked its 50-year presence in Pakistan and is regarded as a pioneer of consumer banking in the country, has invited bids for selling out its credit cards portfolio. According to industry sources, the bank has received two to three offers from other banks that include the Faysal Bank and Silkbank Bank. Initially, the sources said, the bank was in talks with Habib Bank Limited (HBL) for the sell off of its consumer banking division.
The Citibank management, however at a later stage, suspended negotiations with the HBL for reasons best known to it, said the sources.
“The Citibank is still indecisive to whether or not proceed with the sale,” a banker, privy to the matter, confided to Pakistan Today.
While the managements of the foreign banks seemed to have lost confidence in Pakistan where intermittent political turmoil and a long-lasting so-called “War on Terror” has plagued the already ailing economy through adversely impacting the investment situation in an unprecedented manner.
“Probably these decisions (of banks) are based on situation of our economy,” commented a corporate observer. The statement carries enough weight if analyzed in the backdrop of the banks’ ever increasing non-performing loans (NPLs).
According to official data, the country’s banks counted their bad debts at over Rs 623.193 billion during second quarter of FY12 (Sept-Dec). This amount depicts a slight decrease of 1.0 percent when compared to Rs 629.555 billion, the banks’ NPLs during first quarter.
Of the total defaulted-upon amount, over Rs 7 billion belonged to the foreign banks. Interestingly, however, whereas the other banks’ bad debts moved southward that of the foreign banks swelled to Rs 7.574 from the previous quarter’s Rs 7.230 billion. This was despite 6.3 percent increase in their nominal cash recovery (against their NPLs) that stood at Rs 134 million. Asked why the foreign banks were tending to close down their consumer financing businesses, the banking analysts pointed finger at a slow-paced judicial system in the country of 180 million.
Given this situation, the commercial banks have been more risk-averse and extending little advances to personal borrowers. According to the central bank, the volume of banks’ personal loans contracted to Rs 8.55 billion up to June 2011 over the same month in 2010. “In Pakistan main problem rests with the judicial system where the cases are delayed for years,” said an experienced banker.
Requesting anonymity, the banker said whereas recovery cases in the banking courts world over were heard and resolved within 60 days, in Pakistan a bank has to wait for at least 15 years to see its recovery case settled.
At the end of the day, the banker said, the petitioning bank has to see the value of its recovered money reduced to a great extent.
The expert also cited the current economic conditions as a major attributable factor for the foreign banks’ fading-away interest in Pakistan saying “it is also a factor but not that big”.
More worrisome for the banks, the analyst said, was the fact that there was a negative tendency growing among the borrowers in Pakistan not to clear their bank liabilities. “People don’t want to repay. Even the big companies do not,” he said.
Also, there are some who suggest that a tough competition from other foreign banks, like the Standard Chartered, were making the Citibank wind up its division. The industry observers believe that whatever result comes out of the reported intentions of the Citibank, the Standard Chartered Bank is perceived to appear as the biggest beneficiary.