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National Bank investor Open letter - Inside Financial Markets

National Bank investor Open letter

National Bank of Pakistan

Dear Respected Sirs,

People who bought NBP shares as an Investment are the ones who truly believed in Pakistan Story. Despite knowing that State Owned organisations are corrupt, incompetent, inefficient and lacks corporate governance, they still invested in it. Because they were optimistic people who believed in turnaround of Pakistan through improvement in the performance of such organizations. That was also the very basic promise of the PTI Government, who is responsible for running the state owned organizations.

30 months have gone since PTI is running the country and almost 2 years are gone since the new Management of NBP took control over the bank. What the shareholders of the bank got? Nothing. Share price is down from PKR 80 t0 40 and in addition PKR is down 60%. So the share which was traded at 80 cents in 2017 is now 25 cents. This is erosion of 70% in value+3 years of cost of equity, despite the fact that the bank has made comprehensive income of over PKR 92 billion in the trailing 33 months after accounting for provisions of PKR c. 50 billions during the same period. So the bank made PKR 142billion pre provision but after tax profit. During 2017, 18 and 19, the bank did not pay any dividend on account of the so called pension case which is only helping the bank lawyers and his partners.

State Bank of Pakistan, being 75% shareholder of the bank off course does not need dividend or capital gain as it made PKR net profit of Rs1,163.433 billion in FY20. But then why it sold the shares to the public? Public has families and they do have liquidity requirements. Governments around the globe find ways to make people rich through appreciation of equities, real estate, commodities, metals, and many other ways. This is the very basic purpose of the government. If the SBP does not need dividend as it does not have a family to support, then the bank can pay dividend only to the minority shareholders and there are some examples where the controlling shareholders made such decisions.

We believe that the management has done enough cleansing and strengthening of the balance sheet. Capital adequacy ratio is more than 20% and bank has cumulative provision of c. PKR 170Billions against the non performing loans. In addition, in case of any negative event, the main sponsor has the capability to inject equity to address the capital shortage. Furthermore there are tools to raise hybrid equity in form of tier 1 and tier 2 notes. Most of the banks have raised funding to boost up their capital without compromising on the dividends.

The basic purpose of a commercial enterprise is to do whatever it takes to maximize the wealth of the shareholders. Against total equity of PKR 274Billion, the market value of the bank is just 85B. This is just 30% of the net worth of the bank. Meezan Bank for example, has market capitalization of 139B with not even half the size of the NBP in terms of assets and equity. The discount to book value reflects what peoploe think about effectiveness of the management. There are only few PSEs who can bring good-will to the current government and NBP should be on top of that list. But if the goal is to buy the shares from the public and foreign shareholders at dirt cheap price and make the few politician, bureaucrats and insider-rich, than its totally a wrong thing to do and it will have a strong reaction. We also cannot wait untill the Sarmaya-e- Pakistan take control over the bank and take credit or Asad Umar becomes prime Minister and take credit. This should end now.

Life is short, 3 years is a long time. Adopting a balanced approach is the only sensible choice here. If an individual don’t eat for 3 years, it will surely have a stronger balance sheet. But whether he will have life or not that’s the question which the bank management and SBP should think about.

The key request from over 200 minority shareholders who are copies in this email, is as follows:

1) Bank pays cash dividend equivalent to 50% of its profit earned during 2020.
2) bank issues bonus shares equivalent to the 50% of profit earned during 2018 and 2019.
3) Bank do whatever it takes to boost the share price to at least 80% of book value per share (which used to be historical avg).
4) improve corporate governance, reduce non-performing loans, closure of all ROE deteriorating international branches and subsidiaries, accountability of all the people who did fraud in Bangladesh and other locations, reduce operating expenses, increase deposits, reduce deposit cost, increase yield on assets, earn ROE equivalent to MCB, AKBL, HBL, Meezan, BAHL, HMB.
5) The bank should be either privatized or merged with some other private sector banks so that all the problems of the government organization could be fixed and shareholders could maximize their wealth.

Thanks & Regards

Muhammad Ahmad
on behalf of minority shareholders

Syed Zaki Hussain

1 comment

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  • Zafar iqbal Qureshi says:

    Good Effort
    Its very unfortunate that we invested in Natioal Bank from Last four Years
    And got nothing
    IMRAN Khan ,Hafeez sh.and Asad Umar should Look in to it Seriously

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)