Closure of UBL Branch in America


UBL Branch in New York

After a very successful run for more than two decades the Pakistani banking system is facing challenges that it appears inadequate to counter. The uneasy spectre is fast becoming visible as after Habib Bank Limited another big name of Pakistan’s banking industry, United Bank Limited (UBL), has decided to shut down its operation in the USA with the closure of its branch in New York. The apparent reason prompting the bank to take such a step is that financial authorities in New York have issued a warning to it for lack of carrying of compliance procedures governing anti-money laundering.

Though UBL has apprised the New York Department of Financial Services (NYDFS) to continue working closely with them during its voluntary liquidation so that it proceeds in accordance with laid-down regulations. The liquidation may be voluntary but the impression it has conveyed is very awkward keeping in view that Habib Bank Limited had experienced a shut-down due to non-compliance regulations earlier. It is also reported that National Bank of Pakistan is being monitored by US authorities for similar compliance issues and its operations are also described to be at risk.

The pull-out of UBL from New York will further constrict presence of Pakistani banks in the US. This closure will cause uneasiness for Pakistani expatriates sending remittances to the homeland who are quite comfortable banking with a Pakistani entity. The increasing regulatory requirements churned out by American authorities have already made its operations quite uncomfortable for Pakistani banks.

Though the effects of such regulations were expected to bear results later but they were enough for Pakistani banks to cease their operations. The banking sector has nine local banks operating abroad with 117 branches, 18 representative offices (ROs), and 8 subsidiaries. However, this network has incurred huge losses in the current financial year as compared to previous years and has become a cause of concern.

Earlier when the news broke out of issues of non-compliance confronting UBL in New York regarding anti-money laundering matter, the shares of the bank tumbled by 4.4 percent on the stock exchange. It reminded the market of the similar circumstances faced by Habib Bank Limited that claimed the scalp of its president. Though the bank vociferously denied the news even after it was given coverage by Bloomberg. The bank completely rubbished the speculation that it was facing the fate of HBL was subjected to as was alluded to in Bloomberg programme.

UBL Head Office in Karachi

The problem, however, was real enough to merit as cursory mention in bank’s annual report for the year ending 2017 whereby it reported that the UBL and its New York branch have entered into a written agreement in 2013 with the Federal Reserve Bank New York (FRBNY) to address certain compliance and risk management matters relating primarily to compliance with Anti-Money Laundering Regulations including the Banking Secrecy Act.

The report further mentioned that management is in the process of addressing the matters highlighted in the written agreement and in the subsequent inspections. It added that while the bank seeks to comply with all possible laws and regulations and at this stage there is no indication of any financial impact, it is not possible to ascertain the eventual outcome of these matters. This was effectively quite a defensive argument that clearly hinted that all was not well.

UBL denies that its closure is not similar to the HBL saga but it appears to be a smart move to wriggle out of open disclosures in wake of the stringent regulations. UBL clarifies that its branch in New York was engaged in correspondent banking whereas HBL did clearing business. That definitely is a point of difference but the regulations negatively affecting both the banks pertained to anti-money laundering regulations. While HBL closure was unraveling UBL tried hard to clarify that it faces no such prospects but just after a year it had to face almost similar situation. The emphatic enunciation of UBL at the time of closure of HBL was that there was no specific investigation against the bank, the words UBL unfortunately now has had to eat.

Regulatory authority

It is quite worrying to notice that Pakistani banks abroad carry with them the less-than-sound banking practices and follow them till they confront a regulatory hurdle that invariably they feel unable to overcome. The fault lies with the orientation of banking in Pakistan that is rather casual in observing regulatory practices prescribed by regulatory authorities and keep things under wraps for as long as possible. The current electronic banking crisis underlines the cavalier attitude of Pakistani bankers towards an activity that is fast coming under microscopic vigilance. It is imperative that banking practices in Pakistan are umodified fast and in line with prevailing global practices.

Rameez Ansari is an entrepreneur


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