- SBP rejected $ 100m Chinese investment in the bank, gave it to Bank Islami for Rs 1,000
The merger of KASB Bank Limited with Bank Islami has created serious doubts over the performance of the finance managers in the government.
Since Bank Islami now has acquired all the shares of KASB Bank after amalgamating it into Bank Islami, there is a huge question mark over the fate of the KASB Bank employees. Following the merger, the State Bank of Pakistan (SBP) also announced lifting moratorium on KASB Bank which had been put since November 2014.
Previously, a case regarding KASB Bank was being pursued by renowned lawyer Aitzaz Ahsan. However, after assurances from the parties that the bank will be bought by the Chinese company, Nasir Ali Shah Bukhari withdrew his petition.
When contacted, former finance minister Dr Salman Shah said that the merger has reinforced doubts about the PML-N government’s capability and intent to handle financial matters adequately.
“There may have not been such questions if the merger was done in a transparent manner. It’s an issue of capital adequacy. The priority of the regulator should have been to allow the owners to inject capital into the bank,” he said.
Asked whether the objection by the regulator about doubts against the Chinese investment company were legitimate, Dr Shah said that it has been informed that SBP was not happy with Chinese company.
“I feel that the local investors should have been allowed to inject money into KASB. But it has been reported that the merger was done even without the consent of existing owners, which raises serious questions on the intent of the regulator,” he said, adding that SBP says that the Chinese firm did not offer a firm commitment.
“They also claim that the Chinese company was dubious. Anyway, like other commentators, I also have serious doubts over the merger. In past there are no such precedents,” he concluded.
PAID UP CAPITAL:
Official documents available with Pakistan Today suggest that a leading Chinese investment company had offered to inject $ 100 million to KASB. It would have been a cause for Pakistan if the KASB Bank was bought by Chinese investment group which had pledged to inject $100 million into the bank. This was to bring in substantial foreign currency which would have given a boost to Pakistan’s ailing economy. However, the offer was rejected by the SBP.
According to the documents, SBP had increased requirement for commercial banks’ paid up capital (MCR) from Rs 1 billion to Rs 10 billion. For this purpose, SBP had been pressing KASB Bank owners to inject money into it to raise its paid up capital to Rs 10 billion.
In 2014, in spite of bank’s failure to meet the capital requirement, KASB had been functioning efficiently by meeting the demands and requirements of its customers without any default. It was a functioning and performing bank, with a liquidity of over Rs 16 billion, highest in its peer group.
NOT THE ONLY ONE:
The KASB Bank was not alone in failing to meet the paid up capital requirement; there was at least four other private banks.
It was in this context that SBP had imposed a moratorium on KASB Bank, freezing bank accounts of thousands of depositors with 500,000 plus deposit level.
When SBP did so, the bank was absolutely liquid, no cheque was dishonoured and there was no risk of run on the bank. The bank liquidity was much stronger than the peer banks with Rs 16 billion cash portfolio to meet any urgent demand of their customers.
As explained, Bukhari could not now afford the lifting of moratorium because of run on the bank that it will entail. That is why Bukhari could not challenge the moratorium.
It was in this situation that sponsors filed a petition in IHC, to just seek the relief that SBP should include them in the decision making process and also to consider any Chinese investor that they may bring to inject money into KASB.
Barrister Ahsan argued the petition for KASB where IHC restrained SBP from going ahead with the bank’s sale.
Finally, on April 20, 2015, as promised, sponsors succeeded in getting one of the leading investment groups of China, Cybernaut, that has an investment fund of about $10 billion in China, to submit a formal offer to SBP governor committing to invest $100 million into KASB Bank, with $20 million to be invested before 13 May, $30 million by August, and remaining $50 million before end of year.
Bukhari would have become a minority shareholder. The bank’s name was going to be Pak-China Bank.
On April 21, 2015, with the offer of foreign investment having been received, the very next day of the offer having been submitted to SBP, sponsors of KASB Bank unconditionally withdrew their petition from IHC.
When Karachi’s stock market discovered about the Chinese offer, KASB Bank share rose to double its price. The market and the employees of KASB Bank were all happy and excited.
Cybernaut had issued a formal Letter of Intent for restricting KASB Bank and had stated on April 20, “Our group has conducted preliminary due diligence on the bank, and we are pleased to inform you that we will be keen to inject capital to restructure the bank.”
However, in a shocking turn of events, the KASB Bank was sent a letter dated April 27, 2015 titled “Draft Scheme of Amalgamation” from the SBP’s Banking Policy & Regulation Department. The letter stated to exercise “the power conferred on the State Bank of Pakistan” to amalgamate KASB Bank Limited into Bank Islami Pakistan.
This completely undermines the efforts of the Chinese but what is worse is that the amalgamation scheme is termed “a gross example of injustice”. SBP governor took a shocking decision of saying no to $100 million Chinese investment and instead decided to sell the whole bank to Bank Islami for a token price of Rs 1,000.
This decision was taken despite the fact that Dubai Bank, the biggest shareholder of Bank Islami, refused to take up right shares of Bank Islami, citing mismanagement as grounds for refusal. The SBP handed over KASB Bank to Bank Islami, where the sponsor shareholder Dubai Bank was not interested, according to well placed sources.
The SBP issued a refusal on dubious grounds to the Cybernaut group. If it needed information in good faith, then the Chinese team which was in Karachi and the information could have been obtained within a day. Instead, their banking experience was put under question by the regulator.
As for banking experience is concerned, Cybernaut has joined China’s 12 biggest bank with it in this venture of acquiring and running KASB Bank. However, the SBP sent a letter refusing Cybernaut offer for the reason that they had not provided requisite information and that SBP was not satisfied about their banking background.
The BankIslami on the first day of its operations after taking over KASB Bank paid billion of rupees to the depositors. The biggest payment was made to Bahria Town which amounted to Rs 2.5 billion, a source informed.