NBP in a notice sent to PSX disclosed that it reached an agreement with U.S regulators of NBP’s New York branch with fines of US$55mn arising due to historical compliance weakness and delays in making compliance related enhancements. However, there were no findings of improper transactions or willful conduct as per the notice.
Latest press release by U.S Department of Financial Services stated that “The National Bank of Pakistan allowed serious compliance deficiencies in its New York branch to persist for years despite repeated regulatory warnings. Foreign banks that enjoy the privilege of operating in New York have an obligation to maintain effective controls, and the Department will continue to promote financial transparency and take action to protect the global financial system when those obligations are not met”.
Following examinations conducted by the Department and the Federal Reserve Bank of New York in 2014 and 2015, NBP’s New York branch was found to have inadequate Bank Secrecy/Anti-money compliance programs. As a result, enforcement action against NBP was taken in 2016 where NBP agreed to improve compliance deficiencies which later on it failed to do so. As a result, the bank will now be subject to US$35mn penalty in addition to certain deliverables for the improvement in its compliance program.
In addition to the fine by U.S Department of Financial Services, Federal Reserve Board also imposed US$20.4mn penalty against NBP on anti-money laundering violations totaling penalty to US$55mn which translates into Rs9.7bn (Rs4.6/share). In 9M2021, the bank has so far reported earnings of ~Rs25bn.
To recall, HBL also faced a similar fine in 2017 where the U.S regulators initially imposed a penalty of US$630mn on HBL on non-compliance of Anti-money laundering laws, which was later revised down to US$225mn.
NBP is also faced with a pending pension liability case with potential liabilities of over Rs70bn under which the company had filed a review petition in Supreme Court of Pakistan where further judgement is still awaited. The bank due to the aforementioned reason has skipped dividends since 2017, we believe.
We currently maintain our ‘Hold’ stance on NBP as penalty on the bank and uncertainty over the outcome of the pension liability case will have significant impact on bank’s profitability and Capital Adequacy Ratio (CAR).
Courtesy- Topline Pakistan Research