BoP likely to start bad loans recovery soon

KARACHI - The Bank of Punjab (BoP) is expected to start the process of recovering bad loans from the accused defaulters soon in the backdrop of recent Supreme Court decision and with the induction of new management in the said bank, research analyst told The Nation on Thursday.
Kamran Rehmani, a research analyst at FECL said investors’ confidence on BoP has been revised owing to improved operational prospects of the bank.
“Since last couple of trading sessions, BoP has become the volume leader at Karachi bourse with a turnover of 10.4 million shares while its share price also closed at upper circuit”, he added.
A possible bad loan recovery is being anticipated by some market players, which could led to a heavy reverse provisioning in the books of BoP.
It is pertinent to mention here that the Supreme Court had directed the National Accountability Bureau (NAB) to submit the report on Haris Steel Mills loan scam by December 2, 2009.
It must be recalled that the bank of Punjab (BoP) witnessed a severe reputation crisis in 2008 due to a multi-billion lending scam that revealed after the change of the ruling office in the Punjab.
The new management has started functioning in order to revive the bank’s reputations, besides streamlining operations, strengthening system and controls and improving efficiency.
Rehmani assumed that the bank would have classified the said NPLs under loss category and fully provisioned as the collaterals against the loan were nominal in true sense and illiquid in nature.
“There are two scenarios of bad loan recovery from the bank: a) full recovery b) restructuring of the loans”, Rehmani said adding that in the first case it is assumed that the convict would pay-off the full amount of Rs8.6b to the bank.
As per the assumption, bad loan pertaining to Haris Steel would be removed from NPLs and respective provisions that have been already provided would be reversed back. This would provide one time impact of Rs10.57/share on after tax basis.
“We think this is an optimistic scenario as historically we have not witnessed such a huge single cash recovery in a willful loan default case. The last prominent recovery was made by NBP where an old bad loan of the bank in Mehran Bank scandal was recovered. It that case, the National Accountability Bureau (NAB) had recovered Rs1.6b by selling the property of defunct chief of Mehran Bank”, he said.