DRIVING CHANGE
THE RESTRUCTURING OF
UNITED BANK LIMITED
Zubyr Soomro
Citigroup Country Officer - Pakistan
THE RESTRUCTURING OF UNITED BANK LIMITED
Background
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
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%)
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
UBL – Perspective
 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 had
Negative 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Reform – Phase 2
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Reform – Phase 2
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Reform – Phase 3
 Essentially upgrade processes / consolidate for growth
 Implement next downsizing stage – voluntary/nonofficials
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Staff Downsizing
 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
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minimize contention
give signals to unions / bureaucracy / politicians
signal to staff on culture change intent
ease legal process
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Staff Downsizing
 Implementation
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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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Network Rationalization
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Non Performing Loans
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
NPLs – Actions Taken
 Domestic
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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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
NPLs – Reducing the flow
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
The Privatization
 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
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Execution Law
Tax refunds
Resolution of PASMIC default
CIRC sales – especially UAE Royals
 Reform, underpinned by changes in law, key to success
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
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%
(3.7)
1.4
2.7
Operating Profit
(Rs Bn)
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Lessons Learnt
 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Lessons Learnt
 Consultants
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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
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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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Lessons Learnt
 Existing staff
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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
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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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Lessons Learnt
 NPLs
 Prioritize 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
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Lessons for Government
 On Reform
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Take systemic approach (loners will fail)
Use like minded CEOs
Coordinate tough actions
Demonstrate own commitment through support
 On Privatizations
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Avoid unrealistic timelines
Do transparently
Lay clear road maps
Targeted road shows
Need track record to widen investor interest – ie reform first,
then privatize
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS
THE RESTRUCTURING OF UNITED BANK LIMITED
Conclusion
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Can be transformed from dying dinosaurs
to vibrant, lean, competitive entities that
can be privatized
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Temptation to retain once fixed but
privatization is critical
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Set realistic targets – start with more
doable ones!
WORLD BANK CONFERENCE – TRANSFORMING PUBLIC SECTOR BANKS