KARACHI: State Bank of Pakistan feels that under the current circumstances, merger of KASB Bank with Bank Islami is a viable option wherein the bank’s depositors’ interest would be safeguarded and its problem would be resolved on a sustainable basis. Although there is a possibility of foreign investment worth $100 million from a Chinese investor yet the State Bank is concerned of the safety of depositors’ money and prompt payments to them. At the same time SBP does not want to fall in any conflict with the shareholders neither was its intention at the time of placing the moratorium. Considering the fact that Chinese Investor Company called Cybernaut was not able to establish its bonafide even after elapse of considerable time their request was declined on 27th April 2015.
It may be noted that after filing the writ petition against SBP in the IHC (Islamabad High Court) that stalled the resolution process, Mr. Nasir Ali Shah Bukhari (NASB) vide letter dated February 24, 2015, and March 2, 2015 informed SBP that they have identified an investor namely Cybernaut Investment Group (CIG) and requested for a due diligence approval. On receipt of a formal request through K-Corp the SBP had formally requested for complete information on the group to establish its bonafide which was not provided and their request for a formal due diligence was declined due to the aforesaid reasons.
However in view of the gravity of the situation and to protect the interest of the depositors they were offered to share relevant information along with arrangements of funds of Rs 5 Billion within a week on 10th March 2015. CIG completely ignored this offer and NASB filed a contempt application before the Islamabad High Court. On SBP’s response the Cybernaut group requested for a meeting. In this regard a detailed meeting was held with them on April 03, 2015 at SBP, Karachi and it was clearly explained that as per existing law/regulations, any investor who intends to acquire 5% or more stake in a Pakistani bank requires to establish his fitness & propriety before conducting due diligence of a bank and/or signing of any formal agreement for transfers of 5% or more shares with existing sponsor shareholders.
NASB vide its letter dated April 23, 2015 conveyed that Cybernaut has proposed to invest US $ 100 million in 12 months whereas Cybernaut vide its letter dated April 20th 2015 proposed to inject US $ 50 million by end of year 2015 and any shortfall in the MCR of the bank to be covered by the date agreed with SBP. State Bank of Pakistan has noticed that post withdrawal of the petition rumors have been spread that some Chinese investors have struck a deal with State Bank of Pakistan. State Bank denies any such deal and clarifies that a Chinese investor approached State Bank through the bank’s existing shareholders. SBP informed the prospective investor to establish its bonafide and has to clear Fitness and Propriety criteria. They were also guided about the position of the bank and information required to be submitted in order to assess their request. However, they could not submit any of the required information. An entity whose beneficial ownership is not clear cannot be entrusted with the license of a bank.
Although the prospective investor under discussion has indicated to bring in some investment by May 13, 2015 but in view of the quantum of deposits of the bank and the Minimum Capital Requirement the committed amount of investment is very meager. Further, the prospective investor did not share any information about how and from where the funds would be mobilized. State Bank of Pakistan, always welcomes the Foreign Direct Investment, however, this can be accepted only within the bound of laws and regulations prevalent in the jurisdiction. State Bank of Pakistan reassures the public at large that it is committed to strengthen the banking sector of the country. We need to realize that the business of banking is very different and sensitive from other businesses merely having cash to acquire an institution does not mean that the institution be handed over to people who are not fit to run the institution.
If a person wants to enter another territory he or she as a mandatory requirement needs to have a passport and a valid visa without both of them entry is not possible, therefore the Chinese Investors need to realize the fact that it’s just not about having US$ 50 million or US$ 100 million, for that matter, it’s about fulfilling and respecting the mandatory requirements of different territories. SBP realizes the importance of the apparent FDI to be brought to Pakistan but it cannot compromise its responsibility towards safeguarding depositor’s interest (in this case Rs 57 billion of more than 150,000 depositors in are at stake). SBP as a custodian of financial sector always endeavors to safeguard the depositors’ interest and ensures financial stability. While the existing sponsors are applying delaying tactics, the State Bank is concerned about the safety of KASB Bank’s depositors’ money and wants to ensure that they are able to operate their accounts without any hindrance. Any delay in the resolution will jeopardize depositor’s interest as well as market confidence.
The State Bank of Pakistan as part of its mandate is responsible for protecting the interest of depositors and ensuring stability of the banking system. The meaning of issuance of a banking license is allowing an entity to take deposits from general public for onward lending. With authority of taking public money comes responsibility. SBP as a matter of prudence and fulfilling its mandated responsibilities assesses fitness and propriety of every prospective investor in a bank beyond a defined threshold (currently 5%), so as to ensure that the investor is capable of fulfilling the fiduciary responsibilities and can be entrusted with the license to collect public deposits.
In case of KASB Bank SBP intended to ensure the payment of over 150,000 depositors with Rs 57 billion, and resolve the bank amicably in the best interest of all the stakeholders specially depositors and for the sustainability of the banking system at large. It may be recalled that KASB Bank Limited (the “Bank”) has been facing severe capital shortfall in terms of both Minimum Capital Requirement (“MCR”) and Capital Adequacy Ratio (“CAR”) since 2009. As of September 30, 2014 the Banks’ MCR (free of losses) was in the amount of Rs. 0.958 billion with a CAR of negative 4.63% against the required levels of Rs. 10 billion and 10%, respectively (i.e. shortfall of Rs. 9.04 billion in respect of the MCR and shortfall by 14.63% in respect of the CAR.
As a result of supervisory process/assessment by SBP the banks are put on resolution in view of the issues of supervisory concerns. SBP started relevant measures when issues of supervisor concerns were detected in KASB Bank. Considering the Bank’s weak solvency position and serious regulatory violations, SBP imposed certain limitations on the bank and required the sponsors to inject capital. However, neither capital was injected by the sponsors nor any serious resolution efforts were made. Rather, the bank failed to comply with the limitations imposed by SBP. Consequently, sponsors and Board of Directors were advised on 3rd June 2013 to sign an undertaking with SBP.
Unfortunately, the sponsors and Board of Directors, despite SBP’s consistent persuasion through meetings and in writing, failed to meet their critical commitment of capital injection. Ultimately, they were suggested to merge the bank with any of the large banks, however, they failed to do that either. In 2014 the bank was again given a free opportunity by SBP to merge with any other bank in the market as appropriate.
