KARACHI: Bankers and experts in the banking industry have expressed concern over the State Bank of Pakistan’s (SBP) decision to allow merger of KASB Bank with BankIslami on paid-up capital of less than the required Rs 10 billion.
It is noteworthy that the financial strength of BankIslami is not at par with its interest in acquiring KASB Bank. Askari Bank, Sindh Bank, JS Bank along with BankIslami were in the race for the acquisition.
The decision has come as a surprise to the bankers and banking experts, who believed that BankIslami did not even deserve permission to conduct due diligence.
They note that the financial strength of Askari Bank and Sindh Bank is better comparatively, and they could acquire a troubled bank. BankIslami is witnessing a shortfall of Rs 1 billion paid-up capital currently and it has failed to meet the deadline of 2014 end despite repeated warnings by the State Bank of Pakistan, which has strictly directed banks to comply with the directives of the International Monetary Fund (IMF). Other banks such as Summit and Samba had raised their respective paid-up capital before the set date with the help of injection of billions of rupees from their investors. The two banks left were KASB Bank and BankIslami, but they could not meet the Minimum Capital Requirement (MCR).
It is interesting to note that BankIslami management is still working to raise its paid-up capital to Rs 10 billion, though it raised nearly 50 percent of the amount through right shares in the last one year in a lethargic way. If BankIslami does not raise its capital by floating right shares or injection of capital before the deadline, how would it merge operations of KASB Bank after having paid-up capital less than Rs 1 billion along with Capital Adequacy Ratio that stands negative at 4.6 percent, a banking expert remarked. A statement issued by the State Bank of Pakistan on Tuesday said, “Because of weak financial health of KASB Bank and inability of its sponsors to meet capital requirement of State Bank of Pakistan, in the best interest of depositors and other stakeholders, had to request the federal government to place Bank under moratorium.”
