Zarai Taraqiati Bank in trouble as bad loans soar

Bank president says NPLs are 38% of lending that may erode equity

Shahbaz Rana December 25, 2019
Commuters walk past a bank sign along a road. PHOTO: REUTERS

ISLAMABAD: Zarai Taraqiati Bank Limited’s (ZTBL) bad loans have increased to Rs50 billion or 38% of the lending and the bank could face serious financial challenges next year that may completely erode its equity, Shahbaz Jameel, newly appointed ZTBL President said on Tuesday.

The bad loans were in the range of 38% to 40% and the bank was going down, said the ZTBL president while giving a detailed briefing in a meeting of the National Assembly Standing Committee on Finance.

Jameel became president a month ago after the post remained vacant for over a year due to mismanagement by the government.

The non-performing loans stood at Rs50 billion while another Rs25 billion was already settled against the profit, said the president. He said the bank’s equity was Rs52 billion. Pakistan Tehreek-e-Insaf’s (PTI) Faizullah Kamoka chaired the standing committee meeting. The committee expressed displeasure over the absence of State Bank of Pakistan (SBP) Governor Reza Baqir from the meeting.

The committee chairman decided to take up the matter of continued absence of the SBP governor with Prime Minister Imran Khan and National Assembly Speaker Asad Qaiser.

Baqir once again skipped the committee’s proceedings despite being asked to brief the panel about the measures required to be taken to revive sick industrial units in Pakistan.

The standing committee took a detailed briefing on the performance of ZTBL - the country’s premier public-sector financial institution, which is responsible for meeting financing needs of the farming community.

ZTBL booked Rs750 million in losses last year while it was expected to make provisioning for nearly Rs12 billion in the next six months that will completely erode its equity. Jameel said most of the borrowers were not repaying loans and the bank was rolling over these loans instead of booking them as NPLs. The bank recovered Rs74.6 billion worth of principal loans from January through November this year.

“We are at the tipping point, either the government has to give subsidy or a bailout package but before that we want to explore all out-of-the-box options,” said Jameel. Disbursements of loans were also affected because of increasing number of non-performing loans, said the ZTBL president.

ZTBL disbursed Rs61.3 billion worth of loans to farmers from January through November this year. Last year, the disbursements were Rs62.4 billion. About 84.1% of the total disbursements were made in Punjab, which raised objections from members of the committee.

Belt-tightening measures

The bank has decided to cut operating expenses by 20% from January, there will be no increment in salaries for one year and some of the bank branches will be merged with others to save operational cost, said Jameel while explaining the belt tightening measures.

He said that around 86 branches can be merged with others and the number of total branches can be reduced from 502 to around 420 to 450. Till three years ago, the bank had only 438 branches across Pakistan. He maintained that the bank does not want to retrench the employees and instead was hiring 350 people to meet human resources requirements.

He said that the bank’s operating expenses were 67% of its revenues that the central bank wants to be cut to 43%.  The bank was going down because of change in governance culture and mobile credit officers were also not professionally performing their duties, said the president.

The poor state of agriculture sector during the past seven years was also contributing to high non-performing loans, said PPP’s Hina Rabbani Khar. She said that profits of farmers were either static or shrinking while the cost of production has significantly gone up.

Jameel said that the bank had to increase the mark-up rate to Kibor plus 5%, which translates into 18.25%, aimed at avoiding Rs10 billion annual losses. He said that it was still the lowest rate for agriculture loans as compared to other banks.

The committee members objected to the extremely high interest rates, which have also contributed to low recoveries and high default ratios. The members suggested that like the industrial sectors, the government should provide cheap refinancing facility to the farmers.

The bank has also not published its annual and quarterly financial statements since March 2017 due to the federal government’s failure to complete the board of directors of the bank. PML-N’s Ali Pervez said that the standing committee should bind the finance ministry to constitute the ZTBL board and also the audited financial statements should be released.

Published in The Express Tribune, December 25th, 2019.

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