For all clinical reasons, loss-making NIB Bank is a dead horse

Disenchanted minority shareholders of the loss-making NIB Bank, which has been posting losses for three consecutive years without declaring a single rupee as dividend for the equity stakeholders, have had enough it appears.
NIB Bank is owned by the Singaporean investment giant Temasek Holdings that possesses the bank’s controlling stakes (over 70 percent) since June 2005.
“For all clinical reasons NIB Bank can be termed ‘a dead horse’,” claimed a letter written and sent by a 37-member group of minority shareholders to the central bank on April 10. An NIB Bank spokesman, however, said the bank, after posting losses for years, had hit a “break-even” during the just-concluded first quarter of 2013 that saw the bank posting a profit before tax (PBT) of Rs 145 million.
Not sure about the bank management’s ability to transfer profits to shareholders, the spokesman said the current “turnaround” in the bank’s performance would certainly relax the latter.
In the letter, the minority shareholders have called upon Temasek Group to order an internal enquiry, the central bank and the Securities and Exchange Commission of Pakistan (SECP) to appoint forensic auditors and the federal finance ministry to intervene to save the bank’s minority shareholders, “who are Pakistanis”.
The stakeholders, who claim to hold the bank’s shares, worth Rs 2 billion at least, are concerned over what they claimed was a possible decrease by its management in the banks’ capital.
“Some of the banks face a daunting outlook and amongst them is NIB Bank,” read the letter addressed to the State Bank of Pakistan (SBP) governor.
Alleging the bank for having “some hidden and apparent weaknesses,” the shareholders told the SBP governor that the bank had incurred accumulated losses of Rs 56.156 billion during three consecutive years from 2010 to 2012.
Of the total, they said, Rs 44 billion were lost in 2012, Rs 2.044 billion in 2011 and a whopping Rs 10.112 billion in 2010.
2012’s losses, Rs 44 billion, constituted about 42 percent of the bank’s paid up capital which, according to Karachi Stocks Exchange data, amounted to Rs 103.028 billion up to April 22, 2013.
Only the last quarter of 2012, the shareholders said, saw the bank losing over Rs 1.31 billion, 34 percent of the first three quarters.
Questioning the ability of the bank management to wipe out these accumulated losses, the stakeholders termed the bank’s “huge” administrative expense as the biggest contributing factor for these losses.
They, in the letter, told the central bank that during 2012, NIB Bank’s administrative expenses were estimated at Rs 5.173 billion compared to 2011’s Rs 4.72 billion.
“The bank’s expenditures are extravagant to the extent that it has booked seven floors at the PNSC Building and is spending millions to renovate the same,” a shareholder said while talking to Pakistan Today, requesting anonymity.
The bank was shifting its main office to the building, he said, adding the management had replaced the old and seasoned staff with those drawing large salaries without any productive results.
“The bank has not paid any dividend since the Temasek took over six years back,” the shareholders claimed.
Recalling its pre-Temasek record, they said, the bank used to pay dividend, bonus and huge returns to shareholders every year. The NIB’s share value was around Rs 80 when it was PICIC Commercial Bank.
Despite its claim to be a commercial bank with the largest paid up capital, the bank’s current share price at the KSE ranges between Rs 1.50 and Rs 2.80.
According to KSE quotations, on April 22 the bank’s share was priced at Rs 2.17, with its trading turnover standing at 287.7 million. “Probability of any recovery can be termed ‘hoping against hope’,” reads the shareholders’ letter to SBP.
Even the injection of millions of dollars by its majority stakeholder, Temasek Holdings, could not help the bank improve, they added. They went on to accuse the bank of depriving them of their “right to speak” by setting up the bank’s head office in Islamabad. “The minority shareholders cannot afford to travel to Islamabad to raise their voice,” they said.
They also expressed concern over the bank’s plan to reduce its capital to Rs 2.50 per share. “Temasek, an international group, can afford this luxury but the minority shareholders cannot,” they warned and demanded of the Singaporean firm to compensate them in buying their shares before proceeding with its reduction of capital plan. The shareholders wondered as to why regulators, SBP and SECP, quietly witnessed the “downfall” of NIB Bank and the equity of its shareholders.
Talking to Pakistan Today, a shareholder said the State Bank had not yet responded to the shareholders’ letter. He said if the regulator failed to address their concern, they would do all they can to make their voice heard.
When contacted a spokesman of NIB Bank, Ali Habib, conceded to have received the shareholders’ letter saying it was true that the bank was running in losses since the last five years. “It is public knowledge because the bank is a listed company,” he said. But, Ali said, the bank’s performance during first quarter of 2013, January-March, had seen a turnaround with the bank posting a profit before tax of Rs 549 million compared to a loss before tax of Rs 98 million during the corresponding period of 2012. Terming the bank’s results as “one of the best” in market, the spokesman said the bank, under its new management, that had taken over the bank in January 2012, had started showing results.
Ali conceded that the bank’s ability to benefit equity shareholders remained limited in recent years but that the current positive trend in the bank’s revenues would ultimately relax stakeholders.
He, however, was uncertain whether or not his management would now declare the most-awaited dividends for its shareholders on the stocks market. “We are getting established so the shareholders, I am sure, would be relaxed,” said the spokesman.
Responding to a question about the bank’s alleged extravagant expenditures, Ali said, the situation in fact was other way round. In 2012, he recalled, the bank’s revenues increased by 25 percent compared to its 10 expenditure. In 2013, he said the first quarter had seen revenues growing by 21 percent against the bank’s 2 percent expenses. Asked if booking seven floors of PNSC was an economical move by the bank, the spokesman replied in the affirmative. “We have moved to a cheaper premises from one of Pakistan’s most expensive places at I I Chundrigar Road,” he added.
He assured the protesting shareholders that the bank’s new management, led by President Badar Kazmi, who has served Standard Chartered Bank for seven years as its CEO, would turn the bank’s business around. Running a countrywide network of 179 branches, NIB Bank claims to be one of the fastest growing banks in Pakistan having started operations in October 2003 with a paid up capital of Rs 1.2 billion.