Temasek’s NIB Bank suffers loss of US$92 million on bad loans

Saad Hasan

NIB Bank on Monday announced a loss of Rs7.5 billion for 2008 after making heavy provisioning for bad loans in its books in a bid to raise prospects for this year, President and CEO Khwaja Iqbal Hassan said.

Total credit provisioning of Rs9.2bn and goodwill impairment loss of Rs1 billion on account of acquisition of PICIC reflect the bank’s very conservative calculations, he added. “This means we have taken the complete hit and from now on we will be posting profits,” he said, adding that Jan-March quarter of 2009 is already showing signs of good result. “We also expect recovery of Rs6bn from bad loans in next couple of years.”

The loss also includes investments inherited from PICIC. This result is the first after NIB completed acquisition of PICIC’s insurance and asset management companies and PICIC Commercial Bank in 2007.

Talking to a group of journalists here, Hassan said now the merged entities have been aligned together to focus on NIB’s strategy of segmented approach to market. Though overall banking growth will be slow because of political turmoil, he said, NIB has set Rs8 to Rs10bn lending target, most of which will go to self-employed businessmen.

“That is where the demand is because no other bank is focusing on it right now,” he said, adding that NIB has dedicated over 100 of its 244 branches for small and medium enterprises (SMEs).

Referring to findings of an in-house research, he said the SME clientele requires specialised handling through trained staff. “Most of these customers are least bothered about interest rate we charge. All they want is respect.”

The importance of liquidity-starved SME sector has attained significance in recent years and now even the State Bank of Pakistan is pushing banks to increase lending to small businesses. Recently, SBP Governor Salim Raza said a SME credit guarantee agency is in offing that will share all or part of loss a commercial bank may incur in case a borrower defaults on loan repayment.

Out of the total 3.2 million economic establishments in the country, around 99 per cent of them employ 1-10 persons while the share of SMEs in export earnings is 25 per cent and contribution to GDP around 30 per cent.

NIB’s Hassan said there is a need for at least 300 branches for SME segment. “I think in current environment we’ll add 50 branches by 2010.” He said the bank has hired 2,500 people for previously understaffed branches of PICIC since the merger and refuted allegations of forced termination of PICIC employees. “We have right to terminate any contract but they were even given the option of finding jobs as NIB employees,” he said.

“I cannot possibly allow facilities to them which a NIB employee is not getting.” Asked if NIB is looking into buying the operations of RBS in Pakistan, he said: “We have an acquisitive nature. If we see prospects in RBS then we will definitely look into it.” Temasek Holdings, the sovereign wealth fund of the Singapore government, is the majority shareholder in NIB Bank.

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