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    The KASB BANK Scandal Synopsis

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    The sudden imposition of a moratorium on KASB Bank by the State Bank of Pakistan was not considered a prudent step as it dampened depositor confidence and hindered potential deals to sell the bank. KASB had very low capital adequacy of just Rs1.3 billion, far below the Rs10 billion regulatory requirement. Two large banks had been in due diligence to purchase KASB's "good assets" but concerns over $19 billion in deposits from an Iranian company under US sanctions jeopardized the deals. Imposing the moratorium significantly lowered chances of a favorable transaction and left over 100,000 depositors' funds in limbo without adequate depositors protection policies in place.

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    The KASB BANK Scandal Synopsis

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    The sudden imposition of a moratorium on KASB Bank by the State Bank of Pakistan was not considered a prudent step as it dampened depositor confidence and hindered potential deals to sell the bank. KASB had very low capital adequacy of just Rs1.3 billion, far below the Rs10 billion regulatory requirement. Two large banks had been in due diligence to purchase KASB's "good assets" but concerns over $19 billion in deposits from an Iranian company under US sanctions jeopardized the deals. Imposing the moratorium significantly lowered chances of a favorable transaction and left over 100,000 depositors' funds in limbo without adequate depositors protection policies in place.

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    The sudden imposition of a moratorium on KASB Bank by the State Bank of Pakistan was not considered a prudent step as it dampened depositor confidence and hindered potential deals to sell the bank. KASB had very low capital adequacy of just Rs1.3 billion, far below the Rs10 billion regulatory requirement. Two large banks had been in due diligence to purchase KASB's "good assets" but concerns over $19 billion in deposits from an Iranian company under US sanctions jeopardized the deals. Imposing the moratorium significantly lowered chances of a favorable transaction and left over 100,000 depositors' funds in limbo without adequate depositors protection policies in place.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    584 views6 pages

    The KASB BANK Scandal Synopsis

    Uploaded by

    naeem_309759385
    The sudden imposition of a moratorium on KASB Bank by the State Bank of Pakistan was not considered a prudent step as it dampened depositor confidence and hindered potential deals to sell the bank. KASB had very low capital adequacy of just Rs1.3 billion, far below the Rs10 billion regulatory requirement. Two large banks had been in due diligence to purchase KASB's "good assets" but concerns over $19 billion in deposits from an Iranian company under US sanctions jeopardized the deals. Imposing the moratorium significantly lowered chances of a favorable transaction and left over 100,000 depositors' funds in limbo without adequate depositors protection policies in place.

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    The KASB BANK Scandal Synopsis

    Name:

    Imran Akbar Soomro

    Subject: xyz
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    Submission date:

    Table of Contents
    Overview of KASB Scandal_____________________________________________________________________3
    Finding of case study__________________________________________________________________________3
    The stake holders are affected_________________________________________________________________3
    Dealing with the country which is under Americans sanction__________________________________3
    Merger or Acquisition of KASB due to regulatory forces_________________________________________4
    KASBs Low capital adequacy structure________________________________________________________4
    Law supporting to Account holders_____________________________________________________________5
    SBP stand to help KASB Bank__________________________________________________________________5
    Conclusion____________________________________________________________________________________6

    Overview of KASB Scandal


    The sudden imposition of moratorium on KASB Bank by the federal government on the application of the State
    Bank of Pakistan is not deemed as a prudent step by market pundits, as it can dampen the depositors confidence
    on other ailing small banks and hinder the process of selling the bank.

    Finding of case study


    There was an urgent need to resolve the issue of KASBs low capital adequacy. But a more thought through
    decision to facilitate the selling of the bank to any banking or non-banking institution would have been a more
    appropriate step by the central bank.
    The paid up capital of the bank, net of losses, was mere Rs1.3 billion as of September 2013 and is massively
    short of regulatory requirement of Rs10 billion. Sources privy to the bank revealed that sponsors of KASB had
    clearly exhibited their unwillingness or incapacity to raise equity of that amount. They rather had put the bank
    on sale and two large banks, and MCB and NBP, were in the process of due diligence of buying the bank.

    The stake holders are affected


    The sponsors were envisaging a deal to split the bank into a good and a bad bank but after imposition of
    moratorium, it is turning out be an ugly entity. The initial proposal was to split the portfolio with clean assets
    up for sale at discounted price while the KASB group would have distributed the delinquent assets into its other
    companies. The idea for buying entity is to benefit from the tax advantages coming from the losses in the KASB
    bank, as SBP was allowing Rs6.5 billion of deferred tax to be adjusted in three years. But that is not as easy as it
    was portrayed.

    Dealing with the country which is under Americans sanction


    There is an issue of Rs19 billion deposited by an Iranian company couple of years back which has came under
    Americans sanctions. Plus, KASB is the only bank which was doing trade finance in Iran. Two big banks
    interested in buying KASBs good part were demanding a letter of comfort from the SBP on these deposits as it
    was feared that their clients base or business emanating from America may stop doing business with buying
    entity after assuming sanctioned Iranian money in the kitty.

    Merger or Acquisition of KASB due to regulatory forces


    That was a catch-22 situation as regulatory authorities were reluctant to issue a letter of comfort on it
    and hence the potential deal went into jeopardy. An alternate solution could have been to involve a nonbanking entity to buy KASB and it could have converted into an Islamic Bank.
    But nothing of sort has happened yet. Now forcing this bank to cease its operations has significantly lowered
    the chances of a good transaction.
    There are two other banks which are short of minimum capital requirement and depositors are losing trust on
    these banks as well. But not too much to worry as these two banks have capital, adjusted to loses, in excess of
    Rs6 billion and shortage is less than Rs 4 billion while KASB has equity of mere Rs1.3 billion.

    KASBs Low capital adequacy structure


    There is a financial stability board (SBP/SECP joint taskforce on financial conglomerate) which was constituted
    at the advice of ADB in 2009. The question is why the authorities have not engaged that board before coming
    up with such a harsh decision. The 92 percent of depositors (73,000 customers) having collectively Rs2-3
    billion in deposits at KASB and Rs19 billion is of Iranian origin.
    While the rest of Rs40 billion (12,000 or 8% of customers) are stuck across the country in 100 plus branches of
    the bank. These involve corporate customers, individuals and stock exchange clients. Karachi Stock Exchange
    has written a letter to SBP to let its clients banking through KASB to also withdraw deposits or at least allow
    them for margin requirement else there can be a case of default of many clients whose margins are covered
    through deposits of KASB Banks, especially, many working through KASB securities.

    Law supporting to Account holders


    Who is to safeguard interest of these persons? Is there any depositors protection policy prevailing?
    Unfortunately there is none. The policy was formed in 1974 to safeguard depositors above the limit of

    Rs100,000 with state owned banks while todays reality is different as majority of banks are owned by private
    players and there is absolute no mechanism but the people trust on SBP to take care of depositors. And
    especially other small banks.

    SBP stand to help KASB Bank

    The Governor State bank has assured in his press conference yesterday that no other bank is under threat and
    central bank is not considering imposing moratorium on any other bank. Nonetheless, one may wonder, why
    SBP has to reach a stage to come in public and attempt to mitigate threats of bank run. It rather would have
    initially thought of repercussions as now any decent deal of buying KASB has precipitated in thin air.
    And even, after this six months period, or before, eventual outcome is to sell the entity, but it would be more
    difficult to sell now. Although, Governor SBP has said that a merger with a large the deal, and as per a critique,
    this may be to depress the sale value further and the transaction may take place at mere one rupee going in the
    pocket to the KASB Banks majority shareholders.

    Conclusion

    Due to result of great efforts and successful work of team management of KASB Bank, the KASB Bank has the
    capacity to meet its obligations and has adequate surplus liquidity available. All our branches and ATM network
    are operating and the customers can also operate their lockers as per the regular procedure. We trust that this is a
    temporary phase and we shall soon return to normalcy.
    The State Bank of Pakistan always keeps the interest of banks depositors supreme and we have learnt that SBP
    is making its best efforts to resolve the issue in shortest possible time.
    We are greatly indebted to our customers for the support and trust that they have put in us over the years and
    assure them that our integrity and high standards of service will never be compromised.

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