Tackling thieves to boosting loans, this Pakistan bank has to do them all

On his first day as head of Pakistan’s second-biggest bank, Saeed Ahmad visited the branch below his office in Karachi. It was 9:15 a.m., past opening time, but the space was deserted.

Combating such “lethargy” is one of Ahmad’s priorities as he tries to turn around National Bank of Pakistan, which had lost its position as the country’s largest bank by assets and was suffering from bloated costs before he took over last year. From the outset, Ahmad saw fixing the bank’s culture as key to improving its bottom line.

“I was reluctant to come,” said Ahmad, who took over as National Bank’s chief executive officer in March 2017. “In my covering letter I did write what I’m going to do: I’m going to have townhall meetings, emphasize service quality, change the culture, attend to business.”

The state-controlled bank has the highest cost-to-income ratio among Pakistan’s five largest lenders, partly because many of its loans were made at below-market rates to government entities. It also pays more for its funding, due to the relatively low proportion of its deposits in current and savings accounts.

After spending his early months in the job disciplining wayward employees and fixing broken air-conditioners, Ahmad says he is now focused on addressing the bank’s poor profitability -- culling loss-making units and boosting lending margins.

One early priority was clamping down on below-market-rate loans and expensive deposits, which NBP would often resort to in order to meet year-end targets, Ahmad, 69, said in an interview at his office on Monday. He also split the bank’s administrative regions into 37 from 23 to more closely oversee operations, which helped contain the increase in administration costs to 3 percent last year from an average 9 percent in previous years.

He now plans to close some two dozen loss-making branches and limit costs by boosting National Bank’s so-called CASA ratio, the proportion of deposits it gets from lower-cost current and savings accounts, from the high 40s at present to the industry average in the 60s. A targeted increase in loans to small and medium enterprises by at least 12 percent annually for the next three years is also expected to improve margins.

But the cultural issues remain, as Ahmad found when he busted a racket of thieving branch managers this weekend. He is also enmeshed in defending himself against charges of aiding money laundering stemming from a friendship with a former minister.

NBP’s profit will increase by about 10 percent in 2018 with growth led by loans to private companies and consumers, said Ahmad. Net income rose just 1 percent to 23 billion rupees ($199 million) last year, squeezed by the lowest policy rate in more than four decades. Ahmad -- who was a deputy governor at Pakistan’s central bank before he joined NBP -- predicts the monetary authority will raise its benchmark by as much as 0.75 percentage point in 2018.

However, Ahmad may struggle to achieve his plans for NBP, where unions prevail, said Raza Jafri, director of research at Karachi-based brokerage Intermarket Securities Ltd. “If it’s a private bank you can go ahead and do whatever you want,” Jafri said. “In this case, it has a political element.”

NBP’s shares have fallen 35.6 percent since Ahmad took office, slightly less than the 37 percent drop for private-sector rival Habib Bank Ltd.

After graduating from the University of Punjab in Lahore and earning a finance degree from the London School of Economics, Ahmad began his career at Prudential Plc in the U.K. before moving on to banking jobs in Bahrain and Saudi Arabia. He returned to Pakistan in 2014 at the behest of his old classmate and then Finance Minister Ishaq Dar, who persuaded him to head a committee to promote Islamic banking.

Dar is now embroiled in a sprawling corruption case that has also ensnared Ahmad. Both deny any wrongdoing and Ahmad said he isn’t troubled by the ongoing investigation. A court indicted Ahmad last month, accusing him and two others of helping Dar create illegal assets.

“I go every week to attend accountability court. Then I go to our regional office and with video conferencing I have my meetings,” Ahmad said, tucking into a slice of red velvet cake. “People say, ‘Don’t you get worried?’ I ask them, ‘Of what?”’