Islamabad, Pakistan (BBN)- The Pakistan government has allowed the National Bank of Pakistan (NBP) to remit $65 million for equity injection in its Bangladesh branch in order to fulfill minimum capital requirements after the bank’s equity eroded due to Rs13.9 billion in losses.

The decision was taken by the Economic Coordination Committee (ECC) of the Cabinet on Friday which also allowed the NBP to purchase the US dollars from the open market before remitting them in two tranches.

In the first phase, the NBP will inject $44 million to meet the minimum capital requirements under Basel-II framework.

“The amount in two tranches is to be remitted to NBP Bangladesh till Jan 31, 2015,” said a statement issued by the finance ministry of Pakistan.

The ministry said the State Bank of Pakistan (SBP) had evaluated the proposal and recommended that the NBP may be allowed to remit $65m to its Bangladesh office from inter-bank market.

While the government has allowed NBP to inject fresh money into its ailing Bangladesh venture, it has not pressed the bank’s management to recover the losses. The bank management too has not yet fixed responsibility for the loss on anyone, local media reported.

Earlier in December, NBP President Iqbal Ashraf had admitted in front of a parliamentary committee that Rs13.9 billion losses were the result of complete breakdown of command and control in the NBP.

He had vowed to take action against all responsible officials including initiating criminal proceedings against seven Bangladeshi nationals. The Bangladesh nationals had been hired by NBP to run local operations.

Ashraf had stated that Rs15 billion loan portfolio was engineered to default from day one. He stated the regional head and the head office did not take prompt actions to rectify the situation.

According to findings of an audit firm, hired to fix responsibility of losses, the bank management issued facility letters to the borrowers without taking credit reports from the Bangladeshi regulators. The loans were issued without visiting premises, getting legal opinion and audited financial statements. The responsible NBP officials did not seek insurance or collateral against the lending.

On the other hand, Muneer Kamal, chairman of the NBP’s board of directors, said: “More than 90 per cent of the $150m Bangladeshi loan portfolio was non-performing.”

Extended after 2003, the non-performing loans (NPLs) came to light in 2008 when a borrower defaulted on letters of credit.

The NPLs originally amounted to Rs9.7bn, but later went up to Rs14bn. Some of the officials responsible for the loss had already fled.

The total capital shortfall of the NBP stood at over BDT 3.22 billion as of September 30, 2014, a senior official of the Bangladesh Bank (BB) , the country’s central bank, told BBN in Dhaka earlier.

Currently, the NBP, one of the largest commercial banks in Pakistan, is running its operations with four branches in Bangladesh.

The central bank of Bangladesh earlier fixed the CAR at minimum 10 per cent considering the country’s overall risk factors in the banking sector.
Under the Basel-II provision, the standard requirement of the CAR is minimum 8.00 per cent.
Bangladesh is now implementing the Basel-II accord to consolidate the capital base of banks in line with the international standards.
It has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and marketdiscipline.
Three types of risks – credit risk, market risk and operational risk – have to be considered under the minimum capitalrequirement.

BBN/SSR/AD-20Dec14-2:46 pm (BST)