KASB Bank deal saga to continue as NAB looks set to expand inquiry

Will consider converting it into formal investigation, role of central bank and external auditor in the limelight

Shahbaz Rana September 17, 2017
KASB Bank was amalgamated into BankIslami for a nominal value of Rs1,000, a deal many have raised serious concerns over. PHOTO: FILE

ISLAMABAD: Stakes have raised in the high profile KASB Bank amalgamation that took place over two years ago as the National Accountability Bureau’s (NAB) Executive Board is set to consider converting the current inquiry into a formal investigation.

An inquiry report of NAB had stated that undue favours were extended in the amalgamation that saw BankIslami take over the now defunct KASB Bank for a nominal amount of Rs1,000.

Despite $100m investment offer, why was KASB Bank sold for Rs1,000?

Last month, in a report to parliament, the office of Auditor General of Pakistan had also confirmed that the central bank unduly favoured BankIslami at the cost of public funds. The Public Accounts Committee is set to start discussions on thousands of audit objections on the accounts of fiscal year 2015-16 from next month and objection on the KASB Bank deal is one of them.

The NAB’s Executive Board Meeting will consider a recommendation of NAB’s Karachi regional office to convert the inquiry into an investigation, said sources in the bureau. The NAB, which ordered the inquiry in September 2015, has decided to take the matter to its logical end by rejecting pressure it is facing from various quarters, said the sources.  The central bank’s decision to hand over the bank to BankIslami had surprised many, particularly when the SBP gave Rs20 billion cash support to the buyer, which is now the centre of the probe.

The NAB inquiry has accused seven top officials of the SBP including then governor Ashraf Wathra and two persons attached with AF Ferguson of concluding a “non-transparent amalgamation of KASB bank into BankIslami and grant of Rs20 billion concessional loan by SBP to BankIslami”. AF Ferguson had been hired to evaluate KASB Bank despite the fact that the chartered accountancy firm was also the external auditor of the SBP.

The Institute of Chartered Accountants of Pakistan - the apex regulatory body of accountants - has so far maintained its silence on the role of AF Ferguson in the KASB deal.

In its report, the department of the AGP has pointed out that the central bank sustained Rs435 million in losses due to grant of a Rs5-billion concessionary loan to BankIslami.

However, the AGP could not detect a Rs3-billion loss that the central bank sustained by giving Rs5-billion loan at an exceptionally low rate of 0.01% per annum for 10 years to BankIslami.

The AGP auditors could not detect the loss as the central bank showed it under the head of other operating incomes instead of explicitly showing Rs3 billion under the head of expenditures, showed the SBP balance sheet for fiscal year 2014-15.

The central bank booked the amount as “Fair value adjustment on recognition of subsidised loan of Rs2.952 billion”, duly stamped by its external auditor. By doing so, the SBP showed it fiscal year 2014-15 other operating income at Rs103.34 billion, which otherwise could have been Rs106.3 billion.

This gives rise to speculation over the motives behind hiring AF Ferguson by the central bank, according to the NAB sources.

The KASB sponsors have time and again expressed reservations over the central bank’s decision to give the valuation task to AF Ferguson. They argued that the external auditor was not independent due to various reasons including the fact that it accepted the assignment of Financial and Tax Due Diligence of KASB Bank and at the same it was the auditor of SBP as well as BankIslami.

There also existed a dispute between SBP and KASB Bank and its sponsors on its valuations, a fact which created clear conflicting position for the AF Ferguson as mentioned in the Code of Ethics for Chartered Accountants, according to NAB sources.

BankIslami ‘unduly favoured’ in KASB deal: AGP

While valuating the worth of the defunct bank, AF Ferguson did not take into account all aspects such as market based value of KASB Bank shares, recoveries of fully provided NPLs against securities of Rs10 billion and tax losses of Rs10.8 billion available to the acquiring bank, according to the sponsors. The market value of 61 million shares of Shakarganj Food Ltd, based on sector multiples, about Rs6.5 billion; estimated appreciation of Rs1 billion in real estate owned by the Bank and offers received for HUB Property were not considered by the AF Ferguson, according to them.

KASB financial statements showed that it had Rs28 billion of investments, which included Rs23.5 billion of Treasury Bills. The BIPL sold these treasury bills on the very first day and netted a gain of Rs380 million as shown in the half yearly results of BIPL June 30, 2015.

Published in The Express Tribune, September 17th, 2017.

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Arif | 5 years ago | Reply I hope this leads to reversal of the whole transaction. KASB and its old management should be given another chance to manage this financial institution.
Kamal | 5 years ago | Reply What nonsense. Just unnecessary troublemaking. KASB owed Rs 100 billion to depositors at the time of its acquisition. Rs 1,000 was a VERY expensive purchase price for acquiring a Rs 100 billion debt.
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