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Listing on stock exchange a major event

By AMANULLAH BASHAR
Nov 26 - Dec 02, 2001

The National Bank of Pakistan have become the second of Pakistan's five banking giants to be listed on Karachi Stock Exchange, after the listing of MCB some ten years back.

Irrespective to the subscription results for which a deadline between November 19-22 was set, the event should be taken as an ice breaking of the long awaited privatization process specially of the banking companies in the public sector through the stock market.

Supported by the strong financial base the bank enjoys, NBP's packet of 5 per cent shares (18.652 million shares) is now record-subscripbed. An according to the green shoe option, the SBP would also put up for sale an equal number of shares from its holding in the bank in case the offer of 5 per cent shares to the public comes to an state of over subscription.

The financial experts feel that in effect the offer of 5 per cent NBP shares is a test case for more publics offers of other public sector entities, which are standing in the waiting list for privatization.

They are of the view that the prevailing international situation despite having its odds due to Afghan crisis also carries positive signs for the investors from abroad. As soon as the confidence of the investors returns with the normalcy in the Afghan situation, the economic activities are sure to take a new start and a positive turn in Pakistan.

NBP's offering is likely to be one of the largest equity flotations at the stock market in the past five years. This issue is the fourth Initial Public Offering at the capital market this year. The earlier issues of Arif Habib Securities, Fayzan manufacturing Modaraba and WorldCALL Multimedia. Of these three issues Arif Habib's offer was over subscribed, the Fayzan Modaraba issue proved a debacle with underwriters having to pick up nearly 99 per cent of the unsubscribed shares while the trading in WorldCALL Multimedia was suspended due to non-holding of ballot for the allotment of the shares. However, situation is quite different with NBP shares, which are sure to prove the existence.

The strong financial base of NBP certainly is a reassuring factor for the potential investors. The provisional trading of NBP shares at the share market however witnessed heavy fluctuations during last week which started from Rs19-18-17 and on the last day of the week at Rs12-13 indicating lack of enthusiasm as well as the interest among the buyers. It is unfortunate that the NBP's shares were offered at a time when the market was upset due to false fax message regarding alleged approval of the lenders of the Hub Power Company. However that was a temporary phase and things are definite to pick up the pace with the settling down of the dust.

NBP was established in the early days of Pakistan on November 9, 1949 as a result of the trade deadlock with India and the devaluation of the Indian Rupee where Pakistan much to Indian and British consternation did not follow suit, a move which it ultimately benefited from, via the Korean War. The objective for establishing the NBP was to provide much needed financing to the agricultural sector, particularly to facilitate the badly hit jute trade. The bank then went on to become the sole agent of the State Bank of Pakistan for handling Provincial and Federal Government receipts and payments.

Similar to the other five big banks, NBP's had to go through the ups and downs in the nineties with the acceleration in political interference in the public sector financial sector resulting in accumulation of large infected portfolio and inoperative loans.

According to an analyst, the bank in 1997 though saw reforms beginning to come through and much stricter adherence to a proper business model, which has amongst other things seen strong provisioning to provide for potential loan losses and retrenchment of staff.

Advantage

A leading financial analyst, NBP having a much large "zero-cost" funding base, the endowment effect ratio captures the interest spread advantage derived by a bank via its ability to mobilize zero cost deposits. NBP enjoys a substantial advantage in this respect to MCB which has in recent years had a negative endowment effect and this has aided NBP in maintaining a positive interest margin, wherein its other funds are relatively more expensive than its yields on average earning assets. This endowment effect advantage is mainly derived from NBP's unique role as the SBP's and government of Pakistan's banker and from mandatory deposits placed by other banks with it.

NBP has the advantage of being the sole/primary beneficiary of SBP and government's business. This includes business flowing in from government owned enterprises. On the foreign fronts, NBP has the larger foreign branch network and its expanded business on the trade finance and remittance side. NBP processed Rs9.1 billion in home remittances in 2000 and the size of the home remittances at the end of the current year is likely to go beyond the limit of Rs10 billion on account of narrowing down of inter bank and kerb rates of dollar-rupee parity.