Bank of Punjab: NAB yet to launch inquiry against defaulters

Powerful connections and an innovative business plan suffice to secure loan.

LAHORE: The National Accountability Bureau (NAB) has yet to initiate an inquiry in a case of bad debt amounting to Rs1.84 billion which surfaced two years ago against influential defaulters and former president of the Bank of Punjab (BoP) Hamesh Khan.

Does the offence constitute criminal or willful default? The issue raised by Director-General NAB Punjab in a recent meeting of the Executive Board is to be investigated by the Financial Crime Investigation Wing to determine how to proceed with the prosecution.

Sheikh Amjad Latif and Sheikh Ahsan Latif, directors of Gas Natural Limited, applied for a loan to set up a liquefaction plant in Shorkot for which they had neither the capital nor the requisite technical and managerial expertise. BoP officials violated banking regulations to oblige the relatives of a former governor of the Punjab, a close associate of former president General (retd) Pervez Musharraf. The applicants’ claims, all of which turned out to be false, were taken at face value by the bank’s senior management, impressed by the nexus of military and political connections. Khan in connivance with other officials issued the loan without demanding adequate guarantees or carrying out risk assessment.

Directors Amjad and Ahsan fabricated their company profile, claiming to belong to a multimillion conglomerate with experience in LNG-based business. They showed that they had invested Rs360 million as equity in the company on the documents submitted to the bank. In fact the company was incorporated in December 2005 with an authorised capital of Rs1,000,000 and paid-up capital of just Rs10,000.

The BoP’s Central Credit Committee (CCC) at the time comprised Hamesh Khan, Country Risk Manager Azizul Hameed, General Managers Haroon Aziz and Muhammad Shoaib Qureshi, who approved the loan despite the fact that Natural Gas Limited was a newly incorporated entity with neither the capital nor the profile to initiate the business. It was not worth the Rs360 million its directors claimed to have invested in the company. The debtors’ business plan as well as projections based on technical and financial feasibility reports was fabricated, according to documents available with The Express Tribune. The request for project financing was processed without verification by the branch manager and submitted to the CCC.

The officials failed to appreciate the risks associated with being the company’s sole financier in view of the fact that the BoP lacked the human resource to monitor the project. Gas Natural Limited requested the CCC twice for credit enhancement within six months without any justification when the project was ‘not even in the embryonic stage’ in 2007.

The bank allowed the company to withdraw money accumulated as interest instead of asking its directors to raise money for equity contribution. The company was provided $10.899 million for the purchase of imported machinery and an additional $10 million for materials. The shareholders received Rs130 million as commission, which was routed through the corporate bank account at BoP.

The assets mortgaged by the company are valued at not more than Rs6.2 million. Corporate guarantees of Rs1.23 billion each offered by Synergy Resources Limited and Awami Gas Limited turned out to be fake. These companies did not even have the capital to secure the debtors’ liabilities.

BoP President Naeemuddin Khan confirmed that the debtors and the directors of their affiliates Synergy and Awami Gas in connivance with BoP officials embezzled Rs1.84 billion inclusive of mark-up. Synergy had defaulted on a Rs28 million loan. He told The Express Tribune that the case has been referred to NAB and the officers implicated in the scam have been dismissed.

A NAB official disclosed that the State Bank has to forward a reference to NAB to initiate proceedings in case of wilful default. But if criminal default is established, the bureau can take action, while the bank may directly approach NAB.

Published in The Express Tribune, February 10^th, 2011.