SAUDI PAK BANK: THE TURNAROUND

Saudi Pak has helped build a fine reputation out of a tarnished image and is in the process of a full turn-around

By SYED M. ASLAM
Sep 23 - 29, 2002

The turnaround of near-collapse Prudential Commercial Bank as Saudi Pak Commercial Bank has surprised many analysts. The turnaround, as evident from Saudi Pak's half-yearly financial report for the period ended June 30 this year, shows a healthy recovery in less than ten months of its operations amidst the world that changed after 9.11.

On March 19, 2001, the State Bank of Pakistan slapped a moratorium on the Prudential Bank with the concurrence of the government for a period of 180 days under section 47 of banking Companies Ordinance, 1962. The moratorium was imposed due to financial mismanagement and imprudent manner in which the affairs of the bank were being conducted by the previous management.

The moratorium ended on September 18, 2001 and SBP decided to lift all the restrictions imposed on the operations of the bank, which remained suspended for over six months. The unprofessional and unscrupulous business practices indulged in by the former management and the suspension of the business activities during the moratorium had an extremely negative impact on the financial performance of the Bank for year ended June 30 last year. Prudential's pre-tax and post-tax loss stood at Rs 63 million and Rs 64.8 million respectively during half-year ended June 30, 2001.

For a good six months the business activities of the Bank remained suspended until the moratorium ended on September 18, 2001. On the same day Prudential was acquired by Saudi Pak Industrial and Agricultural Company (Pvt) Limited and its associates and was renamed Saudi Pak Commercial Bank Limited, subsidiary of the Saudi Pak Group, which was incorporated in April 1994 as a public limited company and commenced operations in May 1995. It is listed on the three stock exchanges of the country. Saudi Pak Industrial and Agricultural Company was established in December 1981 under an agreement signed between the Government of Pakistan and the Kingdom of Saudi Arabia with the objective to promote economic cooperation between the two countries.

However, the new management initiated a number of measures to make the Bank financially viable particularly focusing on management structure, human resources and finance, treasury and credit management. Special attention was also accorded to marketing to help strengthen the base of deposit.

Soon after taking over, the new management increased the paid-up capital three-fold from Rs 500 million to Rs 1.5 billion. To restore the depositors' confidence the new management paid profit on all eligible deposits totalling Rs 93 million for the entire duration of the moratorium although it was not obligatory because the commercial operations of the Bank remained suspended during this period. The move helped the Bank to win the trust of its depositors who chose to keep their accounts with the Bank once the moratorium was lifted.

In less than 10 months of operations the professional management and prudent practices have helped Saudi Pak Commercial Bank show an impressive performance.

For half-year ended June 30 this year Saudi Pak's net assets stood at a respectable level of Rs 664.6 million compared to Prudential's negative net assets of Rs 281.6 million during the comparative period last year. Deposits increased by Rs 2.091 billion or 43.4 per cent from Rs 4.815 billion to Rs 6.532 billion. Advances grew by 30.7 per cent or Rs 1.533 billion from Rs 4.999 billion to Rs 6.532 billion. Saudi Pak also managed to show a small yet indicative pre-tax profit of 2.12 million compared to Prudential's pre-tax loss of 63 million in the comparative period the previous year. The after-tax profit, however, is much more impressive compared to post-tax loss of 64.8 million in the corresponding period last year.

According to the Bank's latest half-yearly report the management is devoting special attention to the recovery of non-performing advances which has helped it to reactivate a number of accounts through restructuring and rescheduling. The enhanced business activities coupled with control of administrative expenses have also enabled the Bank to earn a profit of Rs 131.572 million after taking into account the impact of recoveries of markup made during the period.

Saudi Pak expanded its branch network in the major cities to a total of 20 by end last year. It has the approval of the SBP to open 8 new branches to bring the total number of branches to 28 nationwide, the majority of which will be connected through networking this year. The bank is in the process of launching its online banking facility connecting all its branches in the major cities by end this year. ATM facilities will also be available to Saudi Pak account holders shortly.

Saudi Pak has also diversified its portfolio to play an enhanced role in consumer financing not to mention its industrial and agro-based projects, tonnes of steel scrap, coal, particularly imported coal. It has also been engaged in financing of raw cotton and is also very active in the textile sector financing on a major scale.

Saudi Pak has helped build a fine reputation out of a tarnished image and is in the process of a full turn-around. It has vowed to 'sharpen' its 'focus on strengthening internal controls and improving operational efficiency.' The financial performance of the Bank shows that the management of Saudi Pak means what it says and does what it means.