The Auditor General of Pakistan (AGP) has accused the National Bank of Pakistan (NBP) of extending undue favors to financially weak borrowers, failing to recover massive defaulted loans, irregularly retaining pension funds, and executing questionable divestments in violation of rules.
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According to the audit report for 2023-24, NBP’s assets grew 26.95%—from Rs 5,240 billion in 2022 to Rs 6,652 billion in 2023—mainly due to heavy investments in equity, treasury bills, bonds, and Sukuk. Liabilities also rose 26.93% to Rs 6,269 billion, driven by higher deposits and borrowings. Revenue on markup surged by 44.44% amid record interest rates, while non-markup income rose 10.69% due to gains on securities.
Massive Loan Defaults:
The audit revealed that NBP failed to recover Rs 170.3 billion from borrowers between 2021 and 2023. Corporate borrowers alone defaulted on Rs 116.5 billion, while SMEs and consumers defaulted on Rs 38.9 billion. Product financing defaults stood at Rs 2 billion, Islamic financing Rs 914 million, staff loans Rs 66.5 million, and others—including Pakistan Railways and government drafts—Rs 11.9 billion.
Auditors warned that weak financial controls, poor risk assessment, and management’s failure to act timely had caused repeated defaults, calling it a “serious concern” as similar irregularities were reported in earlier audit years.
Irregular Retention of Pension Funds:
NBP was also found to have irregularly retained undrawn pensions in 108,413 dormant accounts worth Rs 30 billion for over six months, instead of transferring them back to government accounts as required under SOPs. The AGP said this amounted to a “loss to the government” and highlighted negligence despite repeated reminders from the Accountant General Sindh.
Favoritism in Lending:
Despite external auditors flagging weak borrowers, NBP granted Rs 27.8 billion in fresh facilities to financially distressed companies by June 2023. These included:
- CPL – Rs 17.575 billion
- JK Sugar Mills – Rs 4.389 billion
- Waves Corporation – Rs 1.949 billion
- Tariq Corporation – Rs 894 million
- Diamond Tyres – Rs 691 million
- Hashoo Holdings – Rs 536 million
- Englander Industries – Rs 519 million
- Dadex Eternit – Rs 450 million
- Al-Haj Automotives – Rs 385 million
- TPL Corporation – Rs 250 million
- TPL Trakker – Rs 204 million
The AGP noted that extending loans to such borrowers reflected “significant weaknesses” in credit approval mechanisms and raised concerns of “undue favoritism.”
Questionable Divestment of UNBL:
NBP also came under scrutiny for the sale of its 45% stake in United National Bank Limited (UNBL), UK, to Bestway Group for GBP 22.9 million. The AGP observed:
- The asset was potentially undervalued, with its market worth estimated between GBP 30–35 million.
- The sale was approved hastily in just 20 days without open competitive bidding.
- Valuators hired by NBP assessed the property value lower than market rates, depriving the bank of fair value.
- Sale proceeds credited to NBP Bahrain on July 4, 2024, were not repatriated to Pakistan as directed by SBP.
Audit concluded the sale lacked transparency, caused potential losses, and violated regulatory requirements.
Management’s Weak Replies:
NBP management claimed that loan approvals and divestment decisions were made per procedures and with SBP approval. However, auditors rejected these explanations as “untenable,” stressing that recurrence of such irregularities pointed to systemic weaknesses and possible mismanagement.
Audit Recommendations:
The AGP has called on NBP to:
- Strengthen credit risk management and recovery mechanisms.
- Ensure transparency in asset sales and divestments.
- Comply with SBP directions on repatriation of funds.
- Prevent favoritism and enforce strict financial controls.
