Capitalisation issue: IMF declares progress of four banks ‘satisfactory’

In its fourth and fifth reviews under EFF, lender says largest bank now in compliance.

KARACHI:

The International Monetary Fund (IMF) has said progress with regard to the capitalisation of banks that struggled with meeting the minimum capital adequacy ratio (CAR) is ‘satisfactory’.

In its fourth and fifth reviews under the Extended Fund Facility (EFF), the IMF noted that the largest of the four banks that lacked adequate capitalisation at the time of the preceding review was now in compliance with the regulatory minimum CAR of 10%.

Without naming the bank, the Washington-based lender said The Bank of Punjab met the minimum CAR due to improved profitability.

The rest of the three banks facing capitalisation issues were KASB Bank, Summit Bank and Silk Bank.



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.

The combined shortfall for the three remaining noncompliant banks, which are all private entities unlike the state-owned Bank of Punjab, has decreased to Rs11.3 billion. This amount constitutes less than 0.04% of the country’s gross domestic product (GDP) by the end of September. In terms of banking assets, these banks have a 2.7% share only.

“Staff stressed that the State Bank of Pakistan (SBP) should closely monitor these banks’ activities to ensure compliance with CAR by the end of December,” the IMF said.

Overall, the capital adequacy ratio (CAR) increased to 15.5% for the industry, which is above the minimum requirement of 10%.

According to the Memorandum of Economic and Financial Policies (MEFP), the SBP is monitoring the banks that are facing capital adequacy issues in order to ensure conformity with the minimum CAR by the end of December.

Without identifying Summit Bank by name, MEFP said the banking institution has received a letter of commitment from a strategic foreign investor for a capital injection of $70 million, or Rs7 billion, through a rights issue, which will fully meet the CAR shortfall by the end of December.

In a tacit reference to Silk Bank, the MEFP said its sponsors have injected Rs2 billion and are committed to meeting the remaining capital shortfall by the end of December.

The last of the three banks, KASB Bank, has already gone under receivership and the SBP is ‘actively engaged’ with it regarding its capitalisation. According to MEFP, the SBP is looking at ‘various options’ for its effective resolution by the end of December.

The federal government placed KASB Bank under a six-month moratorium in November with the expected reconstruction or amalgamation by the middle of April.

JS Bank received permission from the SBP on Wednesday to conduct due diligence of KASB Bank. In addition to JS Bank, Askari Bank and Sindh Bank have also shown interest in acquiring KASB Bank.

Published in The Express Tribune, December 25^th,  2014.

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