- Transparency Pakistan letter says KASB Bank was in financial crisis since 2009 but SBP failed to act in time
- SBP says all actions pertaining to moratorium and amalgamation scheme of defunct KASB Bank, including liquidity support to BankIslami, were carried out under legal provisions
Transparency International (Pakistan) has asked the National Accountability Bureau (NAB) to take action over the controversial sale of KASB Bank to Bank Islami for only Rs 1,000, and the unprecedented favour of dolling out Rs 20 billion loan to Bank Islami by State Bank of Pakistan in violation of its own rules.
In letter written to Director General NAB Karachi, TIP Chairman Suhail Muzaffar states that NAB has yet to take action on reports of allegation of corruption in sale of KASB Bank by the State Bank of Pakistan (SBP) at Rs 1,000 to Bank Islami, rejecting an offer by a Chinese company for investment of $100 million in KASB. Moreover, the SBP then gave loan of Rs 20 billion to Bank Islami on concessionary rates, out of which Rs 5 billion was given on interest rate of as low as 0.1% per annum.
The TIP letter says that two members of the SBP central board of directors have confirmed that the SBP has extended Rs 20 billion loan to Bank Islami.
“The money was given after May 7 – the day KASB Bank was merged into Bank Islami. Moreover, the Rs 1,000 valuation wiped out 1.95 billion shares, held by 9,000 shareholders. The SBP governor and other officials concerned cheated the federal government, misrepresented the fundamental facts regarding financial health of KASB Bank and obtained moratorium in sheer abuse of Section 47 of the Banking Companies Ordinance 1962,” the TIP said.
“In a surprise move, the SBP has given Rs 5 billion at 0.01% to Bank Islami for 10 years and for this unlawful favour the SBP is going to suffer a loss of Rs 3 billion on account of lower interest rates,” the letter said.
“The SBP has also given Bank Islami an additional Rs 15 billion at a concessionary rate on rollover basis for six months. The net loss to exchequer will be over Rs 3 billion. The SBP is of the view that all actions pertaining to moratorium and amalgamation scheme of defunct KASB Bank were carried out under the legal provisions available in the Banking Companies Ordinance 1962 and SBP,” the letter added.
“The Cybernaut Investment Group of China had offered up to $100 million investment to bridge the capital shortfall faced by KASB Bank, but the SBP rejected the offer. TI Pakistan requests Director General NAB Karachi to take notice of this alleged illegal act of SBP and hold an inquiry into the matter. And if the allegations are found correct, kindly take action against all those who are responsible, under following Sections 9 of NAO 1999, Corruption and corrupt practices,” the TIP said.
TIP’s letter said that KASB Bank was in financial crisis since 2009 but the SBP failed to act in time what it is meant to do as a regulator.
“The KASB was kept on hold for six months – starting from 8 November 2014 and the SBP was supposed to regulate it within this period. On May 7, 2015, the SBP allowed merger of KASB Bank into BankIslami, after the former could not meet the statutory paid-up capital requirement of Rs10 billion,” the letter said.
The TIP said that by paying Rs 20.5 million in consultancy fee, the SBP got a totally maneuvered and fraudulent evaluation report from M/s AF Ferguson which valued the KASB at Rs 1,000 in April 2015.
“Whereas fact of the matter is on the records and also known to the SBP that M/s Ernst and Young consultancy firm put the KASB Bank’s net equity at Rs2 billion only four months ago on December 31, 2014. The KASB held a mass deposit structure of 75 billion that squeezed down to 57 billion. Two offers by Chinese firms were rejected by governor SBP with an excuse of technical fault,” the letter said.
“One of the offer exceeded $ 60 million but the governor SBP shocked everyone by announcing the bid in name of Bank Islami for just Rs 1,000. Availing this gift from the blue, Bank Islami has become the 11th largest bank of Pakistan with branches above 300. The merger shows the clever and maneuvered approach of one major share holder, a Pakistani investor,” the letter added.
The TIP letter said the scandal has revealed the casual attitude of Pakistani government, incompetency of authorities and poor structure of the regularity institutions.
“People all over the globe are always mesmerized by the official facts and figures while natives are amazed with opposite ground realities. This is perhaps the very first time, such irrational decision been opened in public and is perhaps enough to open the closed eyes of public of Pakistan,” the letter added.
The scandal reveals the reality of Islamic banking system that has more eager to grow by any means while on other end it disclose petty of SBP towards shareholders, the letter said.
SBP SAYS NO COMPLAINT RECEIVED FROM NAB:
Commenting on the TIP letter, a SBP spokesman said that the central bank had not received any complaint from NAB so far.
“ However, we would like to draw your attention to the fact that SBP’s stance/ actions in respect of defunct KASB Bank and its amalgamation with BankIslami have already been validated at the honorable Islamabad High Court, when ex-sponsors of the defunct KASB Bank unconditionally withdrew their writ petition; and subsequently their other writ petition was dismissed by the same High Court declaring their petition to be without force. SBP categorically denies all the charges leveled in the purported letter/email by TIP. SBP would continue to defend its position at any legal forum in the interest of the depositors,” said a statement mailed to Pakistan Today by the SBP spokesman.
The statement concluded that all actions pertaining to moratorium and amalgamation scheme of defunct KASB Bank, including liquidity support to BankIslami, were carried out under the legal provisions available in the Banking Companies Ordinance 1962 and SBP Act of 1956, with the primary aim to safeguard the interest of depositors.
