KARACHI: Heavy trading in KASB Bank shares took place on Monday after the federal government put the bank under a six-month moratorium last week.
On the first day of trading after the bank went into receivership Friday night, the share price of KASB Bank closed at Rs1.47, down Rs0.22 from the previous closing rate.
One of the ‘penny stocks’ on the Karachi Stock Exchange (KSE), KASB Bank was the sixth most traded share on the bourse. Its turnover clocked up at 9.6 million shares, which is more than double the combined turnover of 4.4 million shares recorded since the beginning of November.
Analysts expected a ‘lower lock’ on the KASB Bank share on Monday given the severity of the legal action against it. However, the loss in the share value was not big enough to kick in the automatic halt on its trading.
“The fact that the share avoided a lower lock today points to two possibilities: either potential buyers of the bank were buying it or the management itself was accumulating it,” an equity trader told The Express Tribune while requesting anonymity.
KASB Securities
KASB Securities, which is one of the country’s prominent brokerage firms, is a subsidiary of KASB Bank. Analysts believe the moratorium on KASB Bank is going to hurt KASB Securities, as the bank owns 77.1% shares in its brokerage arm.
KASB Securities faced the first fallout of the moratorium on its parent company last Saturday when the Privatisation Commission cancelled its bid to be the lead financial adviser in the upcoming sale of 42.5% government stake in Habib Bank.
Moreover, KASB Securities and many other brokerages had designated KASB Bank as its settling bank. But the National Clearing Company, through a notice issued on Saturday, asked all clearing members to use settling banks other than KASB Bank until further orders.
Reconstruction
The government imposed the moratorium on KASB Bank under Section 47 of the Banking Companies Ordinance, 1962. It allows the SBP to prepare a scheme for either the reconstruction of the banking company or its amalgamation with ‘any other banking institution’.
As per the ordinance, the amalgamation scheme may contain provisions for the transfer of business, properties, assets and liabilities of the banking company to the ‘other banking institution’.
‘Problem banks’
In its third review of the Extended Fund Facility (EFF), the International Monetary Fund (IMF) had urged the SBP to “continue monitoring the implementation of the time-bound action plan to address capital adequacy issues with a few problem banks.”
The IMF said one state-owned bank and three private-sector banks were operating below the statutory minimum capital adequacy ratio (CAR) of 10%.
Capital adequacy ratio (CAR) measures the soundness of a banking institution and reflects the level of protection its depositors enjoy. CAR is expressed as a percentage of a bank’s risk-weighted credit exposures.
Although the IMF stopped short of naming these ‘problem banks,’ a review of the latest financial statements of commercial banks shows that in addition to KASB Bank, Bank of Punjab, Summit Bank and Silk Bank face CAR issues.
According to financial accounts released by Summit Bank for July-September, the bank has already issued right shares and is ‘hopeful’ of meeting the CAR requirements by November 30.
Similarly, Silk Bank has stated in its latest quarterly report that it expects capital injection by December 31, which will help it meet capital requirements.
Published in The Express Tribune, November 18th, 2014.
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The CAR pre-requisite of the IMF, resulting in the stocks being traded at the lowest ever price, in heavy buying, for an un-known. It sound the owners are buying it by a managed round of events, to liquidate and bring some other strategic buyer. Lota is vigilant about the happenings and is using the intelligence adopted by DFI's.