Karachi: First National Bank Modaraba (FNBM) has detailed its ongoing efforts to address compliance issues and financial recovery in its quarterly progress report for the period ending June 2024. The report, which was prompted by inquiries from the Securities and Exchange Commission of Pakistan (SECP), highlights substantial progress in managing non-performing loans (NPLs) and reducing accumulated losses.

According to information available from the Pakistan Stock Exchange (PSX), FNBM, managed by a wholly owned subsidiary of National Bank of Pakistan (NBP), faced significant challenges when its accumulated losses exceeded 50% of its paid-up capital, primarily due to provisioning against NPLs, mostly in the textile sector. The SECP had technically triggered a winding up process under Section 23(I)(ii)(b) of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980 due to these financial discrepancies.

The report outlines the nature of FNBM's non-compliance, attributing the losses largely to mandatory provisioning on NPLs. However, FNBM has argued that these provisions are reversible as recovery efforts progress. The company has successfully obtained decree orders from banking courts in favor of FNBM for all its NPLs, and execution proceedings are currently underway, which are expected to potentially reverse the losses if successful recoveries are made.

FNBM has also made significant cash recoveries through court decrees and out-of-court settlements since the suspension of trading of its certificates by PSX in April 2018. These efforts have led to the booking of net profits and a steady decrease in accumulated losses in financial statements transmitted to PSX since March 31, 2021.

The management remains optimistic about the future, projecting further cash recoveries and reversal of provisioning in the coming years, contingent on continued favorable economic conditions and ongoing support from NBP. FNBM has appealed to the Modaraba Tribunal in Lahore, requesting the winding up application be set aside and remanded back to the SECP to allow for an amicable resolution that benefits all stakeholders, especially the Modaraba Certificate Holders.

The matter is still pending adjudication, and FNBM continues to work towards meeting the regulatory compliance thresholds and securing the financial stability of the institution.