A tale of two banks

A tale of two banks

We have everything before us, we have nothing before us, we all go straight to Heaven, we all go the other way – in short, that period is as distant as the present,” quote from Charles Dickens’ “The Tale of Two Cities” was published in 1859.

The year was 1997 and the young brand Khawaja Mohammad Asif was appointed as the chairman of the Privatization Commission during the PML-N government, and the IMF was breathing down the drain and banking was the Achilles heel then.

State-owned banks had over 80% market share of total loans in the early 1990s, while the private sector had the remainder. We’ve heard horror stories about mismanagement, corruption and bad debt portfolios. In short, we can be presumed dead and buried! The following example will illustrate the scenario:

In one of our management reviews with the United Bank Limited (UBL) team, it was claimed that around 200 cars were used by the union headed by the famous Aziz Memon. He held court in a separate building from the headquarters and used to distribute letters of promotion among officers.

Then, during the pre-privatization reform period, UBL’s steely-hearted president, Zubyr Soomro, sent them – some 6,000 – dubious promoted officers who packaged through a legal golden handshake scheme approved by the bank’s board of directors, and doctors by lawyer (and later the honorable judge) Shahid Anwar Bajwa.

The tide has changed in the last 23 years after privatization. Today, UBL’s market capitalization exceeds Rs231 billion and the board announced a total cash dividend of Rs44 per share for the year 2023.

In a previous seminar in 1996 chaired by Syed Naveed Qamar, sponsored by the World Bank, the American expert said that when the bad portfolio reaches 8-9% in the bank, we will blow the whistle and put the bank on “alert”, and if it touches 10-11%, we declare it “non-liquid” and send a surgeon to cut it under the scheme.

This particular scheme cost the American taxpayer approximately $850 billion from 1980 to 1988 (according to the Depository Institution Deregulation and Monetary Control Act of 1980).

To this, Dr Yakub, the governor of the State Bank of Pakistan (SBP), replied that in Habib Bank and United Bank, the infected portfolio was more than 30% of the loan book. The Japanese woman from the Asian Development Bank, taking leave from her cultural customs, described it as simple systematic corruption.

In this background, Khawaja Asif held a meeting of the younger Privatization Commission consultants, and asked for solutions and low fruits. It was decided that we offload a small three-branch bank – a wholly owned subsidiary of Habib Bank Limited – called Habib Credit & Exchange Bank.

Expressions of Interest were received from 17 parties. We hired a leading law firm and a leading chartered accountant firm (from the Big Five) for just Rs700,000. We have moved away from the need to appoint a time-consuming and expensive financial advisor.

An internal consultant has been equipped to complete the transaction. The Privatization Commission secured about Rs1.6 billion (FDI from UAE) for 70% shares of these three branch small banks, one each in Karachi, Lahore and Rawalpindi.

The bank known as Bank Alfalah is one of the most progressive banks in Pakistan, having 1,000 branches in 200 cities in the country as well as several international presences, serving millions of satisfied customers, paying the highest salaries/benefits and bonuses to its employees (of total operating expenses of Rs64 billion in 2023), pays Pakistan government billions in taxes every year (Rs42 billion for 2023) and then distributes the rest to its shareholders (profit after tax of Rs36 billion for 2023).

Most importantly, it strives to fund a class of young entrepreneurs with new ideas. Any society that fails to give young businesses a chance to succeed is doomed.

Lo and behold, encouraged by the speed and success of the sale of Habib Credit & Exchange Bank, Khawaja Asif appointed the same consultant to sell First Women Bank. The bank has 38 branches in Pakistan and is expected to attract interest from Pakistan and the Middle East.

As momentum has been built, both the Privatization Commission as well as the investor lobby are ready to conduct a smooth transaction. Just like Habib Credit & Exchange Bank, the bank was auctioned in Islamabad and the process was broadcast live on TV for the world to witness.

The response was spectacular as the bidding raised the price – to Rs28 per share – which was double the reserve price, the benchmark price calculated by experienced chartered accountants after due diligence and full valuation.

The successful bidder was a Pakistani professional with connections to Middle Eastern money. As soon as the auction was over, some people started distributing pamphlets and announced that the Lahore High Court had granted a stay order on the privatization of the bank.

The entire Privatization Commission team, headed by Khawaja Asif, was summoned in the Lahore High Court, tendered an unconditional apology, and gave an assurance to work under the court’s direction on the transaction. That’s the end of this episode.

Wanita Pertama Bank is still crawling on its knees, its financials have not been audited nor published for several years now. And the King’s Horse and the King’s Man could not come to an agreement to sell the bank.

The First Women’s Bank has missed about 26 years! That’s a quarter of a century. It may be another success story and we can have Women’s Bank in 150 cities in Pakistan, and in 10 neighboring countries.

It can be an engine of empowering women entrepreneurs of Pakistan and the Middle East, and Central Asia. It can make women co-owners of businesses with their husbands and sons by giving them advantaged access to capital and credit.

It can give space to our women to speak on company boards. It can be a better Pakistan today!

We’re back to square one as the First Women’s Bank is coming under the hammer soon. One can only pray the person at the helm makes a better choice this time.

The answer lies in strengthening the private sector and relying on their expertise and capital to reform not only the banks but also the power sector, which is today’s Achilles heel.

No amount of planning and round table conferences will give us easy and simple answers, and please know that I am making this statement after much thought and personal consultation. The secret lies in having a bold vision and the political will to walk, be patient and consistent, and set our own path!