HBL privatization: A profitable or loss-making dealVisits 786

      1By Yasir AmeenApril 28, 2014

Habib Bank Limited is one of the oldest and largest banks in the country which had been a profitable and progressive public sector entity but its sudden privatization of stakes have amazed many financial experts and bankers particularly when the then government sold out its shares at thrown away prices in 2003. 

Almost 10 years ago, the bank’s majority shares of 51 percent had been sold out to Agha Khan Foundation for Economic and Development (AFED) at Rs 22.409 billion (USD 389 million), which is now less than the profit the bank made of Rs 23 billion in a year in 2013 with the continuation of the business by the management in one year. 

The government of former dictators Pervez Musharaf was enthusiastic the way the land foreign direct investment in the country to handed over more than Rs 570 billion with 1,437 branches locally and another 40 in 26 countries. 

AFED did investment but it borrowed a loan in collaboration with World Bank’s International Finance Corporation (IFC) of Rs 50 million, which the bank has been paying with additional interest amount at the expense of foreign exchange reserves. 

It is a win-win deal for the AFED which did invest money but made lending from a bank and become owner of the billion dollar bank earning billion of rupees every year and pay few millions on installments. 

Critic voiced their concerns with solid financial reasoning but the dictator turned deaf year and sold out the national assets against peanuts, which some people said he did for appeasing a foreign lobby making his soft image in elite class of the country. 

HBL was a profitable bank in the past and it will be keeping in view its present financial stability but the financial institutions has been mentioned in the list of government privatizing program in the coming years. Not only HBL, but United Bank Limited and Allied Bank Limited have been included in the wish list of the government. 

The privatization of HBL at thrown away prices was a loss-making deal of the then government because the bank’s profit improved from Rs 1 billion to Rs 5 billion before three years of privatization, said renowned banker and economist, Shahid Hassan Siddiqui. 

As the bank is booking handsome profits, it is also sharing the earning with the government which is also shareholder in the bank. But if the government further works to privatize the bank, it will be deal that cut the profits of government with double-edged sword, he said. Because the government will relinquish its growing profits after selling its assets allowing investors to send back money in terms of dollar to different countries. 

The privatization is not part of the PML(N) government manifesto neither it is condition of the International Monetary Fund (IMF), but if the current political leadership is persistent to sell out national assets, it will do to appease people of vested interests, Siddiqui said. 

The privatization of national assets is equal to encourage tax evasion tactically mainly to reduce the fiscal deficit, however, after receiving Rs 1.5 billion gift from Saudi Arabia there is no more privatization of shares needed especially in HBL. 

HBL continued to book profits even after its privatization to AEFD and it widened its branches network to 1,547 across the countrywide with direct and indirect presence in 29 states. Its balance sheet is excellent with record of making revenues of Rs 1 trillion in the history of country’s banking industry. 

The bank's owners now comprise the Aga Khan Fund for Economic Development (51%), Government of Pakistan (42.5%), and the general public (7.5%). 

A B Shahid, another former banker and economist, said the privatization of profitable units was not a wise step and it will never be in Pakistan. But the government should sell out loss-making public sector entities requiring massive restructuring which the government is reluctant to do. 

He said the profitable entities could be sold out to any investors because the buyer is already available in the market whether in local or international market but it is challenge to privatize losing making units. 

Shahid categorically said that HBL privatization was not a right step and it will definitely not be if the government is planning to offload its 50 owned shares. 

In case of HBL, the government should have held majority of the shares hence it could buyback its share in the later years with minority shareholders. Unfortunately it did not happen, he said. 

AFED expanded HBL and its subsidiary significantly in Pakistan in all different areas of financial sectors but this cause the constant outflows of dollar as per international trade agreement. 

If the government opted to hold majority shareholding at HBL, it could not only buyback its share but provided handsome dividends to its kitty every quarter and every year.