NBP could take Rs48b hit as top court rules in favour of pensioners

Bank set to challenge verdict with larger bench; earnings impact to be 29% of book value

KARACHI: The National Bank of Pakistan (NBP) may face a cost of Rs48 billion after the Supreme Court ordered the state-owned entity to revise its retired employees’ pension and pay them arrears.

“Implementation of the decision of the Supreme Court of Pakistan will have a financial impact,” NBP Secretary Board of Director S M Ali Zamin said in a notification to the Pakistan Stock Exchange (PSX) on Monday.



“The bank is considering exercising legal options available to safeguard its interests,” he added.

NBP’s share price hit its lower limit of 5%, or Rs2.90, to close at Rs55.13 with a volume of 3.45 million shares at the PSX despite the notification being made public a few minutes after the ready market closure.

This is the second back-to-back setback to the largest public sector bank, as earlier the bank had unearthed a scam worth Rs18.5 billion at its Bangladesh branch.

“The Supreme Court of Pakistan in the matter of pension related cases...has dismissed the Civil Appeals…of the National Bank of Pakistan and has maintained the judgment of the Lahore High Court,” Zamin added in the notification.

“To recall, Lahore High Court had allowed the Writ Petitions and directed NBP to release pensionary benefits to the bank’s pensioners in early 2016,” JS Research’s analyst Amreen Soorani said in post-SC verdict comments to its clients.

“The bank had estimated its pension liabilities to inflate by Rs48 billion (Rs22/share, 29% of total book value) in case of unfavourable decision, while pension expense would also likely increase going forward,” the JS analyst added.

It is worth highlighting that the bank has not made any provisions against the said as yet, she added.

The potential cost [of Rs48 billion] is equal to almost two years of the bank’s total profits and 21% of bank’s total equity (excluding revaluation surplus on fixed assets), according to a Topline report.

The SC verdict came from a three-member bench. “The decision is likely to be challenged in a five-member bench of the Supreme Court,” First Capital Equities said.



It was learnt that pensions of some 8,000 NBP’s retired employees have not been revised up for the last six years by the bank, which stands autonomous and comes under the finance ministry.

The former employees in the litigation retired during 1999 to 2003.

The penalty can potentially reduce Capital Adequacy Ratio (CAR) to 13% vs 16.5% previously forecasted in calendar year 2017, which can result in NBP withholding dividends in the near term in order to buffer-up CAR, a brokerage house said.

Published in The Express Tribune, September 26^th, 2017.

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