DRIVING CHANGE
THE RESTRUCTURING OF
UNITED BANK LIMITED
Zubyr Soomro
Citigroup Country Officer - Pakistan
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
In Apr 97 asked by recently elected Prime Minister Nawaz Sharif to take over UBL, help restructure & ultimately privatize the bank
Part of financial sector restructuring program – two professionals already brought in to head the other two big banks (together 60% of banking system)
Several key laws already amended to facilitate process Autonomy given to Boards of Government Banks Expediting recovery of bad debts Tightening labor laws
I returned to Pakistan after 14 years with Citibank overseas to take on the UBL task in Jul 97
Background
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
UBL – Perspective
Set up in 1959 – within 10 years was challenging Habib Bank, the largest in the country
Nationalized in 1973 along with 4 other locally owned banks
Privatization program started in 1991 51% of the smaller Muslim Commercial Bank successfully sold Thereafter, via an employee buyout, the smallest – Allied Bank –
sold Privatization of the larger but more problematic UBL
unsuccessfully attempted 3 times between 1991 & 1996
Meanwhile its condition continued to deteriorate (market share fell from 27% to 7%)
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
In April 96 the Central Bank took over – retired central banker appointed Chairman; he took on the militant unions but over the next 15 months had 4 different bank Presidents
As of year-end 1996 the bank hadNegative equity Heavy & continuing operating losses due to
Overstaffing – 21,500 employees Overbranching – 1,701 branches NPLs – 60 % of total loans
An international network (9 countries) incurring substantial losses and under pressure from all regulators
A lack of systems and controls across the board
Demoralized staff, declining deposits & market share
UBL – Perspective
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
The Objectives of Reform
Overall purpose was to reposition it for privatization. This was to be achieved in three phases
Phase 1: (Jul – Dec 97)Stem the bleeding
Phase 2: (Jan – Jun 98)Create Key Building Blocks
Phase 3: (Jul 98 onwards)Consolidate and position for growth
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Reform – Phase 1
Strong Board of Directors from the private sector (CEO’s from major local & foreign companies)
People focus New senior hires for expertise / change (33 key positions) Identify key internal seniors to retain, involve and drive change Downsize staff – cut costs and signal intent to change culture
Rationalize branches and zones
Arrest rising NPLs (80,000 accounts in default)
Start re-building overseas network
Develop/communicate basic strategy – identify external consultants to assist in development of strategic plan
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Data integrity / Timeliness (P&L, Balance Sheet)
Credit policies / controls / review / monitoring (previously all approvals with executive committee of Board)
Strengthen / revamp audit process (25% of new hires into audit)
Treasury – track and manage liquidity / positions
Human Resources – make performance driven
Reform – Phase 2
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Facilitate recovery of bad debts – set up specialized remedial management units
Work on government to resolve public sector default cases to cut drag and signal support / commitment
Establish corporate bank structure for domestic network to limit flow of new NPLs, enhance image
Finalize / implement technology plan – PC based, hub driven (zones / regions)
Based on above progress (Phases 1 & 2) push for capital injection by government
Reform – Phase 2
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Essentially upgrade processes / consolidate for growth
Implement next downsizing stage – voluntary/non-officials
Build overseas franchises – develop strategies, staff up, clean out NPL’s, improve service / ability to lend
Deepen corporate banking effort & implement SME strategy, protect top consumer relationships
Extend automation to cover all key branches (150)
Drive down pay for performance message
Reform – Phase 3
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WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Prior management identified excess of 8,000 out of existing 21,500
Approach coordinated with other banks under SBP umbrella Similar packages, agreed timeframe Others chose voluntary / UBL mandatory to protect quality Others covered all staff / UBL officers only (less grief, more
saves) – total of 5,400 officers in one go
Formula used instead of subjective approach to minimize contention give signals to unions / bureaucracy / politicians signal to staff on culture change intent ease legal process
Staff Downsizing
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Implementation Form team of old / new Involve counsel / media rep throughout Pre-clearance at all government levels Special cell to respond to errors / queries / complaints Communicate with staff to maintain morale – ie no further
mandatory actions Net Effect
Severe political pressure – however ‘no reversals’ decision sent strong positive signals on culture change
842 legal suits against UBL, but position upheld Lessons
Do early, coordinate with other banks World Bank involvement key – identifies as critical to reform
and de-personalizes as seen to be government driven Helped with capital request as regulator saw seriousness
Staff Downsizing
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
1,701 branches, 56 Zones 436 of these losing money, 11 excess zones Target closure of 300 domestic / 11 overseas branches / 11
zones
Strategy of relocating, not retrenching staff
Minimize customer disruption through careful transitioning of clients from closed branches
Cost impact relatively small due to No staff reductions Low cost of closed premises Real saves in opportunity costs of not having to upgrade
branches / technology / branding
Network Rationalization
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WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Overall, the most difficult area to manage
Declared at 60% of loans – actually higher. 25% of these at overseas branches
Used dedicated units with direct CEO reporting
Domestic Profile 150 accounts made up 60% of amount Agricultural / Yellow Cab loans 13% of amount but 80% of accounts 50% of accounts already under litigation
Overseas Profile Concentrated in UK / USA / UAE UK / USA collateralized but not pursued UAE mostly unsecured, and to Royals
Non Performing Loans
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Domestic Dedicated officers against large accounts Outsourced agricultural / Yellow Cab loans Reduced panel of counsel / upgraded quality Used system-wide formulas for settlement eg Principal + 10% Joint approach to judiciary (with Central Bank) to expedite Focus on cash collections – 25% collected in cash, 30%
restructured Post-2001, used Corporate Industrial Restructuring
Corporation (CIRC) formed by Government to take over NPLs from public sector banks
Overseas Royal loans taken over by CIRC with Government
involvement
NPLs – Actions Taken
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Discrete Corporate Banking Group set up to handle accounts over $500,000
Marginal relationships sifted out to remedial unit
Account Management Moved to 3 regional centres and 15 Corporate branches Staffed primarily by new Relationship Managers With skilled staff and new credit process, able to
delegate decision making
Centralization of trade processing (100 branches to 18) and Credit extension (800 branches to 150) enabled better control
NPLs – Reducing the flow
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Advisors (SocGen) complete due diligence
Expressions of Interest invited
Sealed bids submitted by 3 groups Combination of overseas Pakistanis / UAE Royals Owner of Muslim Commercial Bank Union Bank
Eventually open auction, 51% sold, formal handover 9/02
Key Government actions to facilitate Execution Law Tax refunds Resolution of PASMIC default CIRC sales – especially UAE Royals
Reform, underpinned by changes in law, key to success
The Privatization
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Where is UBL today ?
1997 1999 2002
Staffing 21,500 14,000 8,525
Branches 1,701 1,494 1,112
NPLs (% of loans) 60 - 75% 23% 7%
Revenue/Expense 1:4 1.3:1 1.6:1
Market Share 7% 9% 10%
Operating Profit (Rs Bn)
(3.7) 1.4 2.7
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Change in laws was key Autonomy Labor Law Recovery laws
Leverage benefits from systemic approach under Central Bank umbrella
IFI involvement important – not only to fund restructuring but also for monitoring and feedback
Choice & Role of Board – Top Corporate individuals lent credibility in setting policy while leaving management free to focus on operations
Constant feedback to Government at multiple levels to avoid dilution of support
Lessons Learnt
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Consultants Use to train / integrate existing seniors Help develop direction including feedback from old seniors Add credibility with Board / Government Provide independent sounding board Useful for strong, aggressive follow-up
Downsizing Do early on for initial strong message Structure to signal culture change Retain key old players (history/pitfalls) Use media to communicate for maximum reach / transparency Absolutely no exceptions
Lessons Learnt
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Existing staff Surprising number of good people (previously sidelined) Once convinced of sincerity, are great assets Critical to success as documentation poor Communicate constantly & widely Give strong compensation signals (High/same bonuses) Identify best – then trust / delegate
New hires Involve old seniors in choice Balance maturity vs innovation / enthusiasm Initially focus on expertise to establish credibility Quick action on non performance Diversity of experience (geography / banks) helps
Lessons Learnt
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
NPLsPrioritize by court / success probability
Government NPLs as catalyst
Reward and publicize successes
High visibility cases – use to effect
Coordinate approach to judiciary with other players and Central Bank
Separate foreign – focus where laws most supportive
Lessons Learnt
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
On Reform Take systemic approach (loners will fail) Use like minded CEOs Coordinate tough actions Demonstrate own commitment through support
On Privatizations Avoid unrealistic timelines Do transparently Lay clear road maps Targeted road shows Need track record to widen investor interest – ie reform first,
then privatize
Lessons for Government
THE RESTRUCTURING OF UNITED BANK LIMITED
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
Can be transformed from dying dinosaurs to vibrant, lean, competitive entities that can be privatized
Temptation to retain once fixed but privatization is critical
Set realistic targets – start with more doable ones!
Conclusion