NAB investigation against SBP officials dismays central bank

409

KARACHI, Oct 6 (APP): An investigation has been authored by the National Accountability Bureau (NAB) against some of the officials of State Bank of Pakistan (SBP) for alleged misuse of authority in terms of amalgamation of KASB Bank into BankIslami.
The SBP Act 1956 mandates SBP to regulate the credit system of the country and empowers it through the Banking Companies Ordinance 1962 for this purpose, a central bank statement said here on Friday.
It said that using its authority and powers, SBP decided to
amalgamate KASB Bank into BankIslami in 2015 after a moratorium
was imposed by the Federal Government on its request to safeguard
the interests of depositors and to ensure safety and soundness of
the banking system of the country.
This step was taken due to poor financial condition of
defunct KASB bank and its inability to meet regulatory
requirements despite opportunities being provided for an extended
period of time.
Since then a smear campaign was run in some quarters of
media to dub this action by SBP against the law and malign its
staff for misuse of authority, the SBP statement alleged.
Taking notice of these reports, the National Accountability
Bureau (NAB) initiated an inquiry into the matter and recently it
has been learnt from its press release that an investigation has
been authorized against some of the officials of SBP for alleged
misuse of authority in terms of amalgamation of KASB Bank into
BankIslami, the statement of the central bank said.
All stakeholders of the defunct KASB Bank were well aware of
the poor financial and operating conditions of defunct bank,
which was facing severe capital shortfall since 2009.
As of September 30, 2014 Capital (free of losses) of the
defunct KASB Bank was only Rs 0.958 billion against requirement
of Rs 10 billion. Moreover, its Capital Adequacy Ratio (CAR) was
negative 4.63% against the required 10%.
It was the only bank which had a negative CAR.
Even the external auditors of the defunct KASB Bank in bank’s
audited account as of December 31,2013 also expressed concern
over capital position of the bank.
State Bank of Pakistan gave ample time and opportunities to
the sponsors of the defunct KASB Bank to inject further capital
into the bank so as to make it capital compliant and viable bank.
The sponsors of the defunct KASB Bank could not fulfill
their commitments for capital injection despite SBP’s consistent
persuasion and instructions, nor could arrange merger of the bank
with any other bank.
Besides capital shortfall, the bank and its
sponsors were found engaged in fraudulent practices and siphoning
off more than Rs 3 billion from the bank, for which separate
complaints have been lodged with NAB, the SBP statement said.
Further, the sponsors of the defunct KASB Bank introduced
M/s. Cybernaut Investment Group of China, as a potential
investor. Following the procedure, SBP required documentation to
establish their credentials and proof of availability of funds
worth US$100 million. Neither was provided. This left SBP with no
other option but to accept the offer of sole remaining interested
party, i.e. BankIslami.
No person can be handed over a bank without checking
credentials to ensure no risk for the depositors and other
stakeholders.
When any bank is amalgamated through regulatory action,
typically there is withdrawal of deposits and to avoid any bank
run liquidity is provided by central banks. For the same reasons,
to enable BankIslami to cope with post merger withdrawal of funds
by the depositors of the defunct KASB Bank from BankIslami, State
Bank provided a short term loan of Rs 15 Billion for 180 days as
a liquidity support under the legal provisions of Section 17 of
SBP Act 1956.
This amount stands fully repaid. Additionally a
long-term loan of Rs 5 Billion was also provided to BankIslami
for a period of 10 years. This loan is fully secured by sukuks of
equivalent amount. There are precedents in the past, where, State
Bank extended interest free financial assistance to the acquiring
banks resolved under Section 47 of BCO 1962.
It may be pointed out that the said money did not go to the
pockets of BankIslami or any of their shareholders but was
utilized to pay to the depositors of defunct KASB Bank.
SBP reaffirm that all of its actions in the resolution and
amalgamation of defunct KASB Bank were in accordance with the law
and aimed at to safeguard the interests of depositors and to
ensure safety and soundness of the banking system of the country.
None of the SBP officials misused authority nor were
involved in any kind of corrupt practices. All the actions taken
were permissible under the law and were duly approved by the
Ministry of Finance and SBP’s Board of Directors, the SBP
statement concluded.