ISLAMABAD: The Zarai Taraqiati Bank Limited (ZTBL) has decided in principle to defer up to Rs20 billion in agricultural loans for one year to help more than 57,000 farming families weather unprecedented floods that played havoc on major crops.

Speaking to Dawn, ZTBL President Muhammad Shahbaz Jameel said the bank had requested the government to find a way to fund about Rs4bn interest that will become due over the period against the farmers whose crops have been inundated or destroyed.

This could become part of the debt relief that the government is considering providing farmers across the country — depending on sympathetic considerations of the International Monetary Fund (IMF) — given the widespread damage to standing cotton crops, among others, and the negative impact on upcoming Rabi crops, particularly wheat.

Sindh is estimated to have lost almost 65 per cent (two million bales) of its cotton crop, followed by 15pc (0.8m bales) damage to Punjab. Pakistan is estimated to have lost about 3.2 million bales (35pc of pre-flood estimates), with Balochistan losing about 0.35m bales.

Move will facilitate 57,000 flood-hit farmers

The government is expected to facilitate about Rs100bn worth of agricultural loans deferral by all banks for which it would have to provide about Rs20bn against interest subsidy. This could be adjusted by the State Bank of Pakistan’s profit received by the federal government. Subject to IMF consent, the government will waive off one year’s markup for farmers in the flood-affected areas in cases where the farm land has been inundated by flood waters, resulting in a loss of crop.

Mr Jameel said 90pc of the ZTBL customers have under 12.5 acres of landholding and are among the poorest of the poor farmers. The government also assisted this segment during the Covid-19 pandemic by absorbing 80pc of market expense for one year (July 2020 to June 2021).

This meant that, for example, if a farmer had taken a Rs100,000 loan and the annual markup expense was 12.5pc, the federal government was paying Rs10,000 out of the total of Rs12,500 while the farmer paid only Rs2500. As per ZTBL records, 227,000 farmers benefited from the scheme across Pakistan.

It is estimated that if ZTBL defers Rs17-20bn, the annual mark-up expense would amount to Rs3.5 to 4bn. Since ZTBL’s financial position cannot absorb this waiver amount and would in fact be facing cash flow challenges, the proposed scheme envisages an SBP waiver of one year markup to ZTBL from its credit line (through preference shares) facility. The annual expense on this facility amounts to Rs4.085bn.

Mr Jameel said ZTBL had already contributed 10pc (Rs50m) of its net profit to flood victims. In June this year, ZTBL registered Rs514m profit after tax (PAT), thus converting the loss-making state-owned enterprise into a profitable entity after years.

The bank attributed the turnaround to improved internal control through checks and balances and increased use of technology to digitise its operations. The ZTBL also went through a culture change from being an old public sector entity to transforming into a banking business model. For example, the bank used to house marketing, risk assessment and credit teams from one room had a tendency of missing files running in tens of thousands. As a result, the audit teams faced dead ends in performing audit functions, resulting in the erosion of special asset management (SAM).

The change of leadership to a banking background led to the introduction of credit approvals purely on the basis of eCIB (electronic credit information bureau) reports of the SBP, computerised national identity cards (CNICs) and passbook. The new feature of biometric verification has only recently been added to the requirements, and credit is approved within 48 hours.

This helped deliver only genuine loans, unlike past practice where loans were rolled over and over among select borrowers and, in certain cases, fictitious ones. Such problematic lending was then parked in non-performing loans, SAM, or other government relief schemes.

The change resulted in improved recoveries and funds flowing back as field staff came under tight monitoring and the management focused on adjustment lending and stopped enhancements for two years.

The same staff were encouraged to recover those files themselves and bring back those funds, with a 10pc reward against recovery as an incentive.

The concept of external auditors was introduced on the pattern of private banks, and 20 zones out of 31 were audited by A-class audit firms.

As a result, SAM recoveries that stood at Rs607m in June 2019 and Rs660m in 2020 jumped to Rs2.9bn in June 2021 and topped Rs4.1bn in June this year.

The bank thus achieved a profit before tax of Rs2.95bn as of June 30, 2022, against a loss before profit of Rs7.2bn in FY19, Rs8.55bn in FY20 and Rs1.05bn in FY21. For a change, the bank achieved a profit after tax of Rs514 million in FY2022 against losses of Rs6bn in FY19, Rs8.65bn in FY20 and Rs1.85bn in FY21.

This is despite the fact that the central bank did not allow the filling of thousands of field staff for well over 30 months.

Compared to 6,000 plus staff in private banks of the same size, ZTBL’s workforce thus dropped to 4,190, leaving a shortage of about 2,000 as positions remained vacant against outgoing staff.

Published in Dawn, September 15th, 2022