SUBSIDIZED MARK-UP RATE GIVES NBP EDGE IN MICROFINANCE SCHEME

NBP expanding operations to India, China, S. Arabia and Bangladesh.

AMANULLAH BASHAR
May 21 - 27, 2007

The National Bank of Pakistan (NBP), in the backdrop of its huge domestic network of 1232 branches as on March 31, 2007, is doing well to implement government's agenda of poverty alleviation. Hence NBP is emphasizing more on its micro-financing scheme 'NBP Karobar', a government-guaranteed microfinance scheme, which is currently at initial stage.

However, contrary to other commercial and microfinance banks in the private sector which are extending microfinance facility at an average mark-up rate of 22-23 percent, the NBP has an edge over private sector as its total markup comes even half of the private sector. In fact, NBP is charging only 6 percent while the government under its program of poverty alleviation is absorbing another six percent. This subsidized mark-up comes to six percent only for the people while it is estimated at 12 percent for the bank. This is certainly a great advantage to the unemployed to become self-employed and live respectably in society.

In fact, NBP has a program to disburse Rs100 billion through micro-financing in next 4 to 5 years. As per the management the probability of delinquency in this scheme is very low as the mark-up rate is only 6% for the borrower whereas remaining 6% will be contributed by the government.

Actually, the mark-up rate is a significant factor to make this scheme a success. It is interesting to note that on one hand some banks claim that they are doing micro-financing as a social service and strengthening the government program for poverty reduction, yet the high rate of mark-up being charged from the poor does not translate the true spirit of the scheme. It is learnt that in certain cases the mark-up rate exceeds to even 35 percent, which is a harsh contradiction to what is being claimed by some quarters. In this respect, the Security & Exchange Commission of Pakistan, which is regulatory body in the financial sector, should also think of over it while granting licenses or approval for carrying out the microfinance business. By nature, the microfinance business is an investment opportunity which would certainly pay back handsomely if we succeed to give a decent living to less fortunate in society. This is not an area of money making hence those who think only in terms of profit should do some other business instead of adding to the sufferings of the poor by charging high mark up rates.

National Bank of Pakistan, the only state-owned bank, has chalked out an ambitious plan for expanding its network outside Pakistan, including Canada, Bangladesh, India, China and Saudi Arabia.

Actually, the bank is currently operating with 18 overseas branches, however, under its expansion plans, NBP is pursuing a strategy to open more branches outside Pakistan. It is worth mentioning that a representative office of NBP in Canada will soon be converted into a full-fledged bank branch.

More branches are likely to be opened in Bangladesh, India, China and Saudi Arabia, with major emphasis on trade and business, which will impact positively on the fee, commission and brokerage income.

Interestingly in China, due to huge market, there is a very strong possibility of a joint venture with other international banks, sources said.

Meanwhile, the net earnings of National Bank of Pakistan (NBP) grew by 20% to Rs4.3 billion in the first quarter of 2007. One of the major reasons behind the growth was increased net interest income. The net interest margin of the bank also improved to 6.2% versus 5.7% in the same period of previous year (2006). Moreover, reverse provisioning of Rs368million due to the Mehran Bank case also augmented the bottom line.

The National Bank has also excelled remarkably in the area of Information Technology - automation taking 80% business of National Bank online.

However, the process of automation is under process as 20% branch network of the bank has so far been put online.

The bank is pursuing aggressive strategy in this regard. Currently, 100 branches of NBP have ATM facility, which is likely to increase to 250 by the end of this year.

Rs100billion disbursement is likely through NBP Karobar in next 4-5 years.

As on March 31, 2007, non performing loans (NPLs) to gross advances stood at 10.5%, which is on higher side as compared to the other banks. It is due to the old bad loans of failed institutions like Mehran Bank and NDFC. NBP, however, is carrying these bad loans on its book, which are estimated around Rs8-10billion. However, provision coverage against these loans stood at 81% and recovery of these loans looks well within reach as serious efforts in this regard are being made and reversal of provision is likely in coming years as well.