Suspension of Trading in Certificates of First National Bank Modaraba as Non-Compliance Issues Trigger Winding-Up Application

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Karachi, In a significant development, the Pakistan Stock Exchange (PSX) has suspended the trading of certificates of First National Bank Modaraba (FNBM) following a letter dated September 28, 2023, revealing critical non-compliance issues and the initiation of a winding-up application. The suspension comes as a result of FNBM’s failure to rectify various violations of regulatory guidelines.

Nature of Non-Compliance:

The first issue highlighted in the letter pertains to FNBM’s provisioning for Non-Performing Loans (NPLs), primarily in the textiles sector. The bank charged provisioning in compliance with the Securities and Exchange Commission of Pakistan’s (SECP) prudential regulations for Modarabas. However, these provisions led to substantial losses that exceeded 50% of FNBM’s paid-up capital.

Furthermore, FNBM is managed by a wholly-owned subsidiary of the National Bank of Pakistan (NBP). Despite NBP’s approval in June 2018 for an injection of additional equity amounting to Rs. 300 million into FNBM, the necessary approvals from the State Bank of Pakistan (SBP) have not been obtained.

The letter also highlights the Registrar Modaraba SECP’s initiation of a winding-up application in the Modaraba Tribunal Lahore. This action was triggered by FNBM’s accumulated losses, which primarily comprised provisioning against NPLs. It is worth noting that provisioning is not considered a permanent expense or loss, and its finality is contingent upon the success of recovery efforts from NPLs.

Efforts for Recovery:

FNBM has taken legal action against all its defaulters (NPLs) and has secured favorable decree orders from respective Banking Courts. Execution proceedings for these cases are currently underway, and the bank remains optimistic about the prospects of recovering the outstanding amounts.

The suspension of trading in FNBM’s certificates reflects the seriousness of the non-compliance issues and the concerns surrounding the bank’s financial stability. Investors and stakeholders are closely monitoring the situation, awaiting further developments as FNBM works to address the regulatory challenges and secure the required approvals from the SBP to rectify its financial position.

The post Suspension of Trading in Certificates of First National Bank Modaraba as Non-Compliance Issues Trigger Winding-Up Application appeared first on Pakistan Company News.