Troubled bank gets last chance to increase capital

In case of failure, government will take over control of the institution.

ISLAMABAD:

The federal authorities have given a last chance to a troubled private bank that is struggling to meet its paid-up capital requirement before taking over control of it as the bank’s capital needs have grown far more than Rs10 billion, says Finance Minister Ishaq Dar.

The State Bank of Pakistan (SBP) had proposed that the private commercial bank should be taken over as the management was using delaying tactics for the last two and a half years and was not fulfilling the capital adequacy ratio (CAR) requirement, he said.

Dar was responding to a question at a press conference on Wednesday over putting the name of the bank’s majority shareholder on the Exit Control List (ECL).

According to the SBP’s plan, Dar pointed out, it was recommended that depositors’ assets should be frozen for 15 days after the takeover. “But instead of accepting the proposal, we decided to give a last chance before taking any action.”

The federal government has put the name of the banker, who owns majority shares in the bank, on the ECL on the central bank’s recommendation after he allegedly refused to sell his institution to a Lahore-based business tycoon.

The limited bank, headquartered in Karachi, is among three commercial banks that are falling short of the CAR requirement – the ratio of a bank’s capital to its risk.

Dar denied that the government was giving preference to a party and the matter of finding a partner had been left to the bank’s management.

He said he had made it clear to the bank management that it could negotiate with any investor except the National Bank of Pakistan as it would not give an impression that the government was buying the private party’s bank.

Dar said the banker’s name was put on the ECL after SBP Governor Ashraf Wathra feared that the banker who often remained abroad and may go again for a few months could delay the resolution of the longstanding issue.

He pointed out that the bank’s capital requirement was around Rs5.5 billion a couple of years ago, which has now increased more than twice. “The banker’s name will remain on the ECL until he finds a solution.”

To a question about giving preferential treatment to the other two banks that were also not meeting the CAR requirement, Dar stressed that the SBP was also engaged with the two banks. One bank had already arranged 40% of the required capital and the remaining would be arranged this month, he added.

The other bank has shown a correspondence, which establishes that a Saudi Arabian investor is willing to invest in the bank.

He said the capital requirement of these three banks was less than 1% of the total assets of the banking system, yet the government would not take any risk and the depositors’ money would be saved.

Published in The Express Tribune, August 7^th, 2014.

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