Following in the footsteps of Punjab, Sindh and KP, the government of Balochistan has unveiled its plan of establishing a bank during ﬁnancial year 2017-18. The rationale for the bank is that it is going to generate employment and also provide requisite capital for potential investors of Balochistan. Existing commercial banks hardly make any investment in this capital starved province. The line of arguments taken is plausible and makes sense.
Intentions, no matter how lofty and noble materialize when implemented after thorough study. So I go by the decision of the government but have certain reservations, with no mala ﬁde against this decision. To materialize the plan Rs.10.0 billion have been allocated in the budget. This is a big decision with long term future ﬁnancial implications. Some lobby tried to sell this idea in the past as well, but it could not be implemented.
As a common man with little understanding of ﬁnances and ﬁnancial management, few questions arise in my mind, and I want to share with the hope to get some convincing and rational answers. But before I raise those questions, I must tell that the SBP guidelines put minimum requirement of Rs. 10 billion for establishing a commercial bank. Hence allocation is in line with that requirement.
Now my questions:
1– The allocation for the bank has been kept in Current (non-development) budget while it is Capital expenditure. As per Rules of Business Finance Department is the Administrative Department for this activity but this Capital expenditure and should have been part of PSDP. All such projects require pre-feasibility and PC1 before reﬂecting in the budget. Have these preliminaries completed?
2– Have we conducted basic study of market for launching of the bank? Such launch requires a growing market, not when Interest rate is lowest in the history!
3– Have we studied possible competition within province and in the country with major banks?
4– Any such venture requires minimum two to three years before reaching break even. Are we ready to face losses in this intervening period and how do we plan to make up the losses?
5– Our budget has Rs.52.0 billion deﬁcit, is it wise to add to the existing burden by investing in highly volatile area?
6– What about cost of establishing more than 10 branches besides head ofﬁce? Where is provision for capital expenditure of these branches?
7– Have we done the head hunting for Board of Directors and CEO as Prudential regulations require nomination at the time of seeking SBP authorization?
8– All three provinces have huge business concerns all over Pakistan, and these concerns generate business for their respective banks. From which target area are we going to generate business?
9– The most critical area of Banks is its Treasury Function, to be managed by highly professional and competent hands with practical experience of decades. The success of any bank is dependent of this department. Do we have such people available?
10– The SBP requirement is 50% holding by general public through IPO. This is normally done through syndicated arrangement through banking consortium with one leading bank. In current market shares may not be acceptable at par value, rather will have to be off loaded at discount. What about losses due to discount plus ‘SPREAD” of lead bank and other syndicated banks?
There are many other allied serious issues involved in a bank, but these are urgent questions which need answers before we take a plunge.
Writer is former Secretary Finance of Government of Balochistan. Click here to read more article written by writer.
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